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Wednesday, December 3, 2014

Why do healthcare costs continue to skyrocket?

Most of us would agree that the United States has the best healthcare system in the world, as even people in nations like Britain and Canada frequently come here to receive the best treatment in a timely manner. The problem with our system is that the cost continues to rise, almost to the point that many of us cannot afford it even with insurance.

As most healthcare providers know, finding the best treatment for a disease first requires a diagnosis. So, that said, what are some of the causes for driving up the cost of healthcare?
  • Technology:  This is the main contributor of rising healthcare costs, as, for example, installing and implementing electronic health records is costly.  Those new MRI, CT, and ultrasound devices are great, but they are very costly.  And the cost is justified because people in those industries need to have an incentive to continue to take the risks that are necessary for such technology to become a possibility.
  • Prescription drugs: This is another main contributor, although in recent years spending on this has actually gone down, perhaps due to high cost to consumers. Likewise, as with technology, high prescription prices are justified by the high cost of research and development for new medicines.  There needs to be monetary incentives or pharmaceuticals will find something else to invest their money in.
  • Chronic disease: Better technology, prescriptions, and improved wisdom has increased life expectancy for those living with chronic disease. This places a lot of demand on the health care industry. Some estimate the cost of managing such patients is about 75 percent of health care costs.  According to, people who fall into the category of having three or more comorbidities account for 20 percent of healthcare costs. 
  • Aging populationHealth care costs rise with age. As baby boomers retire this cost will rise as it shifts to a new generation with fewer payers. 
  • Fewer payers per recipient: In 1965 there were 5 workers for every beneficiary of Medicare, by 2000 this was only 3, and by 2040 there will be only 1.9. This is mainly due to the fact that eligibility was set at 65 in 1965, and the life expectancy was 66. It was originally supposed to be only for those who outlived the life expectancy. In 2010 the eligibility age is still 65, and the life expectancy is 78. More and more people are outliving their expectancy, and are eligible longer, and the eligibility rate has never been adjusted. Despite this fact, few politicians want to risk losing voters by raising the age required to receive social security benefits, thus encouraging people to plan their own retirements rather than relying on the government. 
  • Free Medicine: Another usually overlooked cause of healthcare costs rising is Medicare, Medicaid, and the Affordable Care Act (AFA).  When people perceive something as free (even if it really isn't) they tend to take advantage of it, as was what happened after the passing of Title XVIII of the Social Security Act in 1965 (which created Medicare). Since 1965 healthcare costs and expenses have skyrocketed. In this sense, the government is responsible for much of the cost of healthcare, while other reasons tend to get the blame.  The bottom line, economics 101 teaches that as demand increases (more patients to the ER, for example) and the supply stays the same (limited # of healthcare workers and supply) the price to each will rise
  • Physicians:  According to, physicians are the most common scapegoat for rising healthcare costs, and some say they are responsible for 80 percent of healthcare costs. However, once the data is compiled, their net take home pay amounts to only 10 percent of overall healthcare spending.  If cut by 10 percent, this would save the country $24 billion as estimated by CMS.  While this is still a lot of money, students need an incentive to become doctors, so this cost is more likely to go up than down, and rightly so.
  • Administration fees: About 7 percent of health costs are marketing and billing expenses and cost of maintaining an administration. Add into this government administrative fees and this is an area that is increasing in costs.  Since AFA of 2010 was signed by the president, administrative fees have skyrocketed in order to comply with the new law. According to, if administrative fees were cut by 10 percent, this would save $360 billion annually (as estimated by CMS). 
  • Rising Insurance Premiums:  In order to stay competitive, hospitals, as well as other businesses, must supply health insurance.  However, according to the Henry J. Kaiser Foundation, healthcare premiums went up 3 percent in 2014 alone.  The cost to the hospital has likewise risen, forcing hospitals to pass along the additional costs to consumers (patients). According to, 80 percent of administrative fees are due to rising insurance costs. While politicians insisted AFA would drop insurance premiums, the opposite had resulted.
  • Device Manufacturers:  According to, while most people complain that physicians are responsible for 80 percent of healthcare costs, device manufacturers are the main culprits. Forbes notes California as an example, where Medicare pays on average $18,000 for hip replacement surgeries, and $16,336 goes to the hospital and only $1,446 goes to the physician. Similar situations exist in most other states as well.
  • Regulations:  Physicians, nurse, respiratory therapists, are also burdened with the task of keeping up with all the administrative regulations, which often require them to order and do procedures that are not indicated just to meet reimbursement criteria.  The frustration of complying with regulations increases charting time and reduces time spend with the patient.  In other words, it results in worse patient care at a steeper price. 
  • Burnout and Apathy:  Keeping up with administrative regulations has resulted in hospitals forcing physicians to order more procedures than are actually needed. With staffing already at its limits, this forces healthcare workers to work twice as hard to get all this work done.  The end result here is burnout and apathy.  Those working under such conditions tend to spend more time charting, less time with their patients, be less likely to notice early warning signs, and have longer response times to emergent situations.  Totalled together this results in an almost unrecognizable reason for rising healthcare costs. 
So, you see, there are many causes of rising healthcare costs. Finding the best solution may be easier said than done. 

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