Healthcare Costs – The Real Story

Fact: During the period 2000-2003, the average annual increase in personal health care expenditures was 8.2 percent. This equates to $4,866 per capita in 2003 (compared to $2,398 in 1990). ⁴

Note that this statistic specifies “expenditures” – what we are spending on healthcare in this country. We tend to use the terms “spending” and “costs” interchangeably, but this only discourages the notion that disparate factors could be affecting costs versus spending.

Let’s compare healthcare to another booming industry – consumer electronics. In the 1970s, you could get a color television for around $250 and a transistor radio for $25 (adjusted for 2004 inflation, that’s $1,051 and $105 respectively). Now, however, many of us can (and routinely do) drop thousands of dollars on a TV, and hundreds more on a stereo system. Comparing apples to oranges? Sure. A high-definition, widescreen, plasma TV is a different animal than a 1970’s era color TV. But that’s exactly the point. We’re buying better toys. Not just better, more toys too. According to the Consumer Electronics Association, the average U.S. household now owns 25 consumer electronics products and spends more than $1,250 annually on electronics.⁵ Better and more toys, contributing to retail sales of over $125 billion in 2005, and all the while the cost of producing electronic components and accessories has gone down.

Similarly, much of the available healthcare data supports an increase in spending and quality (as opposed to costs). For example, over the past 30 years, there has been a steady decline in visits to general and family practitioners, but a 60% increase in visits to specialists.⁶ We are choosing to pay more for specialists, and in return we receive the expertise and advanced procedures that only a specialist can provide for many ailments.

Another factor amplifying healthcare spending is our aging population. It’s been said that up to 80% of our healthcare dollars are spent trying to prolong the last 20 years of our lives. Then it should come as no surprise that more money is being spent on healthcare by the 34 million Americans who are over 65 years old.⁷ With the early baby-boomers now hitting age 60, healthcare spending from this portion of the population will continue to grow. And it’s not without rewards. Since 1970, Americans’ life expectancy from birth has increased by nearly seven years.⁸

The rest of us, too, are spending more on healthcare, mostly in the form of prevention. The percentage of adults receiving a flu shot grew by 20% between 1989 and 2002.⁹ Vaccinations of children 19-35 months grew 7% between 1995 and 2003.¹⁰ Of women age 40 and older, 69.5% got a mammography in 2003, compared to only 29% in 1987.¹¹ Prescription and OTC drug use has increased, as well. From 2001-2002, 62% of physician office and hospital visits involved at least one drug.¹² And, although the incidence of such conditions as asthma, diabetes and obesity continues to rise, so does the number of people who seek medical help for these conditions instead of trying to deal with the problem on their own.

There is no doubt that Americans are spending more on healthcare, and getting more in return. One might still argue that the cost of healthcare is also increasing. However, the data to support this assertion is harder to come by. When we return to the example of consumer electronics, we find there are a finite number of components used to manufacture a tangible product. The price of these components can be measured and tracked over time to definitively answer the question of cost.

 In the case of healthcare, however, the “product” is not tangible, nor are the components that contribute to the end result finite or easily quantified. Whether the product is a successful bypass operation, which adds years to a patient’s life, or a visit to the doctor’s office for a routine checkup, the healthcare received may be any combination of procedures, medical devices, supplies, or drugs. Accurately depicting the costs of each of these components, in proportion to the amount used during each visit, would be an impossible task.

Even looking at the problem from a billing standpoint is unreliable. Take the same procedure and ask five different physicians what they charge for it. They’ll give five different answers (perhaps more, if the question is asked on a different day). Hospitals are also known for necessary cost variances, having developed a ‘chargemaster’ system which allows them to shift costs from powerful payer groups that negotiate lower rates to those with less clout.¹³ The result is an ever-changing price list that cannot be used to prove (or disprove) the “cost of healthcare” argument. 

It would seem, then, despite all the headlines that healthcare spending is growing, but the jury is still out on the costs. The real story is that the quality of our healthcare is greater than ever before in our history, and will continue to grow. When that translates into personal health and longevity, it’s a good thing.

References

4:  “Health, United States, 2005” report. CDC
5: “Household Penetration of CE Products Soars in 2005.” Consumer Electronics Association, May 2005
6: “Health, United States, 2005” report. CDC
7: “2004 American Community Survey.” US Census Bureau
8: “Health, United States, 2005” report. CDC
9: “Health, United States, 2005” report. CDC
10: “Health, United States, 2005” report. CDC
11: “Health, United States, 2005” report. CDC
12: “Health, United States, 2005” report. CDC
13: “The Precarious Pricing System for Hospital Services.” Health Affairs, Vol. 25, Issue 1, 45-56, 2006