The Continued Rise in Cost of Healthcare

A recent blog in Definitive Healthcare explored “5 Reasons Why Healthcare Costs are Rising”.  It focused on the projections of national health expenditures rising at an annual rate of 5.5 percent and consuming 19.4 percent of gross domestic product by 2027.  The two top stimuli for increasing health care costs are interrelated:  chronic disease and aging baby boomer population. 

Chronic Disease as Driver of Increasing Health Care Cost

The CDC defines chronic diseases as conditions that last a year or more, require ongoing medical attention and/or limit daily activities.  Chronic medical conditions account for approximately 75 percent of all healthcare spending with cardiovascular disease, cancer and diabetes as leading causes of chronic illness and death in the US. 

The CDC lists common risky behaviors as etiologic factors in chronic disease development:

            Tobacco use

            Poor nutrition including diets high in sodium and saturated fats

            Lack of physical activity

            Alcohol abuse

The listing is not surprising and clearly indicates there are wide areas for improvement in diet and lifestyle.

Baby Boomers

With increasing age, chronic illness follows, leading to the aging of baby boomers as a second driver of escalating medical costs.  Estimates indicates 10,000 baby boomers turn 65 year old each day.  The American Hospital Association indicates that there will be approximately three times as many people over age 65 in 2030 than there were in 1980.  This demographic indicate further stress on health care costs.  Baby boomers have an internet experience prior generations have not possessed and consequently will possess greater amount of health care knowledge and more likely to be engaged in their day-to-day health care than any previous generation of seniors. 

Provider Shortages

A third reason contributing to the escalating health care cost is the anticipated shortage of providers, including physicians, nurses, home health care aides, laboratorians, pharmacists etc.  Today 55% of all registered nurses are 50 years or older and 52 percent of the physician workforce is 55 years or older.  Estimates are that by 2025 the US will need 2.3 million new health care workers entering the market to meet the demand.   Certainly, we can anticipate that the growth of automation will assist in alleviating some of the workforce shortage, but inevitably, the shortage will lead to increased costs, both in terms of remuneration for increased numbers of health care workers and delays encountered in the delivery of health care to those with chronic illnesses leading to further compromising of health. 

Increasing Drug Prices

A fourth area is one we hear about on almost a daily basis: the increase in drug prices.  The US stands apart from all other nations in the world in the expense of drugs.  This increase in cost is not just with newly developed drugs but also with the boosted prices witnessed in the cost of older pharmaceuticals.  

Administrative Costs

A fifth area cited are the administrative costs associated with health care.   A study at the Boston University School of Public Health found that in 2009 administrative costs accounted for 14% of total health expenditures and by 2012 that figure was greater than 16%.  This only continues to increase with some sources citing administrative expenses in large hospitals at 25%.  The administrative expenses are driven largely by billing activities, due, in no small part, by the need for the billing departments to interact not only with public programs, but also with the multiple private insurers, each with its only set of payment complexities.

Cost of health care will only become a greater problem as time goes on.  To solve the problem will require considerable collaboration between health care providers, state and federal government entities and the health insurance industry if we are to have a significant effect on health care cost without causing a concomitant deterioration in delivery of medical care.

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