Health Expenditures and Services in the U.S.:

Health care costs continue to rise rapidly in the U.S. and throughout the developed world. Total U.S. health care expenditures are estimated to have grown from $2.39 trillion in 2008 to $2.50 trillion in 2009.

The health care market in the U.S. in 2009 was made up of hospital care (about $789.4 billion), physician and clinical services ($539.1 billion), prescription drugs ($244.8 billion), nursing home and home health ($213.6 billion), dental care ($101.9 billion) and other items totaling $611.2 billion. Registered hospitals totaled 5,708 properties in 2008, containing 945,199 beds serving 37 million admitted patients.

Net federal spending on Medicaid and Medicare accounted for about 22.3% of all federal government expenditures in fiscal 2009. Medicare, the U.S. federal government’s health care program for Americans 65 years or older, provided coverage to 45.5 million seniors in 2009 (up from 44.8 million the previous year). Federal Medicare costs for fiscal 2009, net of premiums paid by beneficiaries, were projected to be $430.8 billion. By 2030, the number of people covered by Medicare will balloon to about 78.0 million due to the massive number of Baby Boomers entering retirement age.

Medicaid is the federal government’s health care program for low-income and disabled persons (including children), as well as certain groups of seniors in nursing homes. The federal government incurred Medicaid expenditures totaling $180.6 billion in fiscal 2006, $190.6 billion in 2007 and $201.4 billion in 2008. This amount was projected to reach $262.4 billion in 2009, but the actual amount may be higher due to temporary spending. At one time or another during 2007, 61.9 million people (about 20% of all Americans) were enrolled in Medicaid, and average enrollment for the year was 49.1 million

State governments incur large expenses for Medicaid benefits as well. For example, in 2007 alone the states spent $149 billion on Medicaid, over and above the federal expenditure. The Great Recession devastated the budgets of most of the 50 states. Tax revenues plummeted while demand for many state services rose. For example, as of October 2009, unemployment remained at a very high rate in the United States, just below 10%. This pushed more people into poverty, which increased the number of people eligible for Medicaid by several million. Federal stimulus spending included a temporary, $87 billion increase in Federal support for state Medicaid spending for the period October 2008 through December 2010.

Health spending in the U.S., at about 17.6% of Gross Domestic Product (GDP) in 2009, is projected to grow to about 20.3% by 2018 unless drastic reforms take place. Health care spending in America accounts for a larger share of GDP than in any other major industrialized country. Despite the incredible investment America continues to make in health care, 15.4% of people in the U.S. (46.3 million people) lacked health care coverage for the entire year of 2008. For some, insurance was unavailable or unaffordable. In other cases, a lack of insurance was due to a personal decision not to pay for it. For example, a significant number of the uninsured, about 8.2 million, were in households with annual incomes above $75,000. A large number of the uninsured, approximately 8 million, are illegal immigrants. According to the Center for Immigration Studies, about 64% of illegal immigrants were uninsured in 2006. The actual number may be much higher today. A Kaiser Family Foundation study, “Medicaid and the Uninsured,” dated February 2007, estimated that one-fourth of the uninsured are eligible for public programs but are not enrolled. These are largely low-income children, and in some cases their parents.

Clearly, the large number of people with no coverage is a problem, but there is little-to-no agreement as to what to do about it, if anything. As of late 2009, a sweeping health care reform and expansion of coverage was being pushed by the White House, to the extent of universal health care for nearly all Americans. Agreement among members of Congress as to the advisability, method and funding of such care is far from certain. At the same time, large numbers of Americans are relatively well satisfied with their current payors and methods of coverage. Likewise, many Americans and their legislators are extremely reluctant to see government take a lager role in the health care system, fearing runaway costs, bloated bureaucracies and less competition in the marketplace. Some feel that it is not the role of government to penalize patients or employers who do not purchase coverage. Others are reluctant to see America follow in the footsteps of nationalized medicine in neighboring Canada, where patients for many types of common treatments are on extremely long waiting lists or find it next to impossible to receive certain types of advanced therapies. Yet another concern is that expensive treatments or drugs may be made off limits under a national system in order to restrain costs.

As of October 2009, the Obama Administration was pushing an agenda of health reform based on federally-mandated universal coverage. If such a bill is passed by Congress, it will likely contain some or all of the following elements:

1) Roughly 25 million of the current 45 million will remain uninsured. This includes 8 to 10 million illegal immigrants who will not be covered. (A small number have already obtained health coverage independently.) Among citizens and residents who reside in America legally, many will remain uninsured because they cannot afford even subsidized insurance, they make a personal choice not to participate (and thus face potential tax penalties) or otherwise fall through the cracks.

2) To help pay for a large portion of the federal cost of universal care, the government will attempt once again to cut waste and fraud in Medicare and reduce Medicare expenses overall.

3) Private health insurance companies, makers of medical equipment and other health industry firms will face higher taxes or fees to help pay for the the new system.

4) Individuals who receive particularly generous work-related health insurance plans, or the companies that provide these plans, may be charged an excise tax. High income individuals who incur large medical expenses may receive lower tax write-offs for health care costs.

Health Expenditures Globally and in OECD Developed Nations:

A comprehensive study published by the OECD (Organization for Economic Cooperation & Development), covering 33 nations with the world’s most developed economies, found stark contrasts between health costs in the United States and those of other modern nations. In 2006 (the latest data available), the average of 33 OECD nations, such as France, Germany, Mexico, South Korea, Australia, etc., including the U.S., spent 8.9% of GDP on health care. The highest figures were in the U.S. with 15.3% of GDP, Switzerland 11.3% and France 11.1%. Health expenditures per capita for these 33 nations in 2006, on a purchasing power-adjusted basis (PPP), averaged $2,824.

Globally, the total prescription drug market was in the $600 billion range in 2009. Total health care expenditures around the world are difficult to determine, but $5 trillion would be a fair estimate for 2009. That would place health care at about 8% of global GDP, with health care expenditures per capita at about $800. This $5 trillion figure breaks down to approximately $2.4 trillion in the U.S., $2.3 trillion in non-U.S. OECD nations, and $0.3 trillion elsewhere around the world. (Outside the U.S. and the rest of the OECD, that would allow $50 per capita per year in lesser-developed nations.) Clearly, there is vast disparity in the availability and cost of health care among nations, as there is with personal income and GDP.

Health Care Costs in the U.S.

Particularly in the U.S., continuous increases in the cost of health care, growing at rates far exceeding the rate of inflation in general, are hammering health consumers and payors of all types. Insurance providers continue to struggle to contain costs. Meanwhile, employers are hit hard by vast increases in the cost of providing coverage to employees and retirees. In 2009, employer-provided health care insurance coverage for a typical family cost an average of $13,375 for the year (up from $12,680 in 2008), according to a study conducted by the Kaiser Family Foundation, and $4,824 for single coverage for the year (up from $4,704). Employees were required to pay $3,515 of that cost for families and $779 for single coverage in 2009, on average, with employers picking up the balance. According to Kaiser, premium costs for family coverage rose 131% from 1999 through 2009, while the employee contribution rose 128%.

Many major employers are utilizing unique new programs in efforts to reduce employee illness, and thereby reduce costs. For example, the use of preventive care programs is growing, as is the use of employee education aimed at better managing the effects of diseases such as diabetes.

Smart employers are showing their employees how to use the Internet to obtain better information about diseases and prevention. Insurance providers are jumping on the Internet bandwagon as well. Some employers are even hiring in-house physicians and nurses to provide primary and preventive care in the workplace.

Patients and insurance companies are also dealing with sticker shock over the nation’s prescription drug costs. Other factors edging costs upward include expensive new medical technologies and patients’ demands for greater plan flexibility in choosing doctors and specialists at their will. At the same time, hospitals and health systems write off massive amounts of revenues to bad debt, which increases costs for bill-paying patients.

In the wake of the tremendous growth of all aspects of the health care industry from the end of World War II onward, efficiency, competition and productivity were, regretfully, largely overlooked. Much of this occurred because employers plus federal and state governments paid such a large portion of the health care bill.

Physicians are caught between the desire to provide quality care and the desire for cost control on the part of payors, including PPOs, Medicare and Medicaid. The cost versus care debate has spawned an energetic movement to improve the quality of health care in the U.S., much of it centered on patients’ rights, disease management, preventive health care and patient education. Nonetheless, wellness programs, preventive medicine and health education remain woefully inadequate.

A study released by the Milliken Institute in 2007 found that during the year 2003 (the year on which the study focused), 109 million Americans suffered from one or more of the most common, chronic diseases, including cancer, diabetes, heart disease, pulmonary conditions, mental disorders, stroke or hypertension. This means that more than one-third of all Americans had these conditions to one degree or another. The study estimated one year’s cost of treatment of these conditions at $277 billion, but estimated lost economic productivity to be vastly higher at $1 trillion. In other words, lost work and lost output due to these illnesses reduced the nation’s GDP by about 10%. These burdens could be vastly reduced through better consumer health practices and better preventive medicine. For example, obesity, lack of exercise and cigarette smoking are immense contributors to these diseases. The Centers for Disease Control and Prevention reported that medical costs for obesity-related diseases rose as high as $147 billion in 2008, compared to $74 billion in 1998.

Meanwhile, technology marches ahead relentlessly. Be sure to read our descriptions of such innovations as HIFU, Proton Beam Radiation Therapy and the newest biotech developments later in this chapter.