Drivers of Healthcare Costs

The United States healthcare system is the most expensive in the world, reaching $3.5 trillion in 2017 ($10,739 per person) and comprising 17.9% of the country’s gross domestic product (GDP). Expected to reach 19.7% GDP (or $5.7 trillion) by 2026, healthcare costs are reaching unsustainable levels, jeopardizing America’s international competitiveness, burdening U.S. families, and weakening the economy at the federal and state levels. The factors driving healthcare costs are numerous, multifaceted, interconnected, evolving, and often fluctuating in their unique impact during any given time period. In addition, many factors vary by region and state, and some are just fundamentally inherent. This article does not try to solve the cost dilemma, but merely articulate the current data regarding healthcare spending and the underlying drivers of healthcare costs.

Why Are We Spending More?

Population Growth and Aging

According to a 2017 study in the Journal of the American Medical Association (JAMA), healthcare spending increased by $933.5 billion from 1996 to 2013. The study looked at five factors that drive healthcare spending: population growth, population aging, disease prevalence or incidence, service utilization, and service price and intensity. As expected, population growth and aging were found to be significant factors driving healthcare spending. The increase in the United States population from 1996 to 2013 accounted for a 23.1% increase in spending, amounting to $269.5 billion. Aging accounted for an 11.6% increase, totaling $135.7 billion. The JAMA study revealed that the U.S. is simply spending more money on more people, due to population growth and due to the fact that more people are qualifying for Medicare and Medicaid, two of the U.S.’s major payers in healthcare spending.

In 2017, 57.6 million people were enrolled in Medicare. That number is expected to increase to 73.7 million people by 2026. Additionally, 72.7 million people were on Medicaid in 2017, and that figure is expected to rise to 81.3 million by 2026 (CMS). The fundamental reality of population growth means that more money will be spent on health care for more people, and as Americans live longer, getting older and sicker, healthcare spending will continue to rise.

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