The Impact of Medical Technology on Health Care Finance

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The Impact of Medical Technology on Health Care Finance|
Patricia Brewer|
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Health care costs have been rising for several years. United States health care Expenditures surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980 (Kimbuende, 2010). Slowing this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs. In 2008, U.S. health care spending was about $7,681 per resident and accounted for 16.2% of the nation’s Gross Domestic Product. This is among the highest of all industrialized countries. Total health care expenditures grew at an annual rate of 4.4 percent in 2008, a slower rate than recent years, yet still outpacing inflation and the growth in national income. There is a general agreement that health costs are likely to continue to rise in the near future. Many analysts have cited controlling health care costs as a key for broader economic stability and growth, and President Obama has made cost control a focus of health reform efforts under way. By 2016, total health spending is projected to rise to $4.2 trillion. Rising health care costs raise health insurance premiums, which are also growing at a much quicker pace than overall inflation or workers' earnings. Health spending has been rising two and a half percent a year, faster than the gross domestic product over the past four decades (Covington, 2008). Although Americans benefit from many of the investments in health care, the recent rapid cost growth, plus with an overall economic slowdown and rising federal deficit, is placing great strains on the systems used to finance health care, including private employer-sponsored health insurance coverage and public insurance programs such as Medicare and Medicaid.

Since 1999, family premiums for employer-sponsored health coverage have increased by 131 percent, placing increasing cost burdens on employers and workers. The average cost of a one-day stay in a hospital has now risen to over $500, the total cost of a coronary bypass operation and follow-up treatment has reached $37,300, and the average cost of delivering a baby now exceeds $2500. As costs have increased, fewer people have been able to afford the medical care they need. Over 37 million Americans, including over 12 million children, carry no health insurance at all and are unable to afford private health care, they must rely on a public health system that cannot deal with such a burden. With workers’ wages growing at a much slower pace than health care costs, many face difficulty in affording out-of-pocket spending. Government programs, such as Medicare and Medicaid, also account for a significant share of health care spending, but they have increased at a slower rate than other private insurance. Medicare per capita spending has grown at a slightly lower rate, on average, than private health insurance spending, at about 6.8 vs. 7.1% annually between 1998 and 2008. Medicaid expenditures, similarly, have grown at slower rate than private spending, though enrollment in the program has increased during the current economic recession, which may result in increased Medicaid spending figures in the near future (Kimbuende, 2010).

A major cause of the rise in health care spending is due to advancements in medicine and technology. Both have improved and lengthened the lives of many Americans, but as most know they do not come without a cost. Newly rising procedures are often expensive to give and increase overall health care spending. According to the

Congressional Budget Office, “the bulk of increases in health care spending could be attributed to the development and dissemination of new technologies and medical services.” Such advancements also lead to changes in practice, which together tend to increase spending. Consumer demand and...
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