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Small Business Employee Benefits and HR Blog

What Goes Up Must Come Down: Why Healthcare Spending May, At Long Last, Be on the Decline

March 16, 2015
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Starting in the early 1990’s, Americans gradually began paying more for healthcare, and the costs have continued to increase over the past three decades.

As a country, we have been forced to pay more for our healthcare, and conversely, have received much less. And that’s only the people who qualified for health insurance. From 1990 to 2012, the rate of insured persons in the US fell from 86.6 to 84.6 percent. Had the rate stayed solid, six million more people would have had healthcare coverage in 2012.

Despite this consistent pattern, America’s healthcare spending problems are finally on the upswing. Stated below is the growing evidence that points to our country entering a new era of getting more while paying less.

Why Has Healthcare Spending Been On the Rise?Healthcare_Spending-1

Aging populations. As the U.S. population ages, we naturally have more healthcare needs, therefore incurring more medical costs. It’s projected by The Congressional Budget Office that between now and 2035, aging will account for the largest share of health care inflation for both Medicare and Medicaid programs.

Improved outcomes. In the U.S. we spend more on healthcare than most large countries, and some of the time, this is evident in better health outcomes, such as cancer care, and shorter waiting times than other countries. However, we still rank poorly in terms of infant mortality, coordination of chronic care, and life expectancy.

Annual spending on physicians. The U.S. spends about five times more than peer countries each year on physician salaries. The leading driver in this gap is the healthcare spending with specialist doctors, which is 3-6 times higher in the U.S. versus peers. Procedure rates in the U.S. are more expensive, from both a public and private payer perspective. Specialists are the cornerstone for building a strong healthcare system and the cost for these types of physicians in the US is relatively low, which benefits general primary care spending, however, it does no favors for overall healthcare costs because of the significantly higher insurance reimbursement, which ultimately creates imbalance.

Why Healthcare Spending is Finally Working For You Rather Than Against You

As a nation we are experiencing two main trends that are evidently moving us in the direction of “get more and pay less”, and here’s why:

Many more people have access to health care coverage than ever before. Because of the implementation of Obamacare, in 2014 alone, it’s estimated that 5 million people purchased health coverage. Why? Because it’s becoming increasingly affordable, more attainable, and portable. While group healthcare premiums continue to soar, private plan options or employer healthcare reimbursements remain a pragmatic and viable option. Section 105 medical reimbursement plans are increasing in popularity because of their low cost and flexibility.

An additional reason why the U.S. is now getting more from healthcare spending is that health costs have leveled out in recent years, and are predicted to continue to do so over the next decade. Health care costs rose, on average, 2 percent faster than the economy between 1990 and 2008. Healthcare spending claimed a hefty portion of the economy. Raises for workers were scarce, and catapulting premiums hijacked most of their additional wages.

President of Kaiser Family Foundation, Drew Altman declared, “We are seeing historic moderation in costs now over a considerable period of time.” Experts say this is partially recession related. When the economy takes a nosedive, people generally spend less on medical care.

Conclusion

While access to affordable health care has been arduous to obtain, economic forecasters predict that over the next few decades, U.S. healthcare spending will grow at a slower rate than it did in the 1990s and 2000s, even as multi-millions of Americans finally gain access to health insurance. After two and a half decades of spending more and getting less, our nation is now entering a cycle of spending less and getting more. 

What are your thoughts on the future of healthcare spending?

 

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