Rising Health Care Costs in America

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It is unarguable that health care costs in America have been rising to the point of being out of control. When looked at as a percentage of GDP, cost per capita, or total spending, the amount that the U.S. is spending on health care each year is increasing far faster than the rate of inflation.  What is less obvious, however, is the cause of these cost increases. Three recent articles offer three distinct theories for the causes of the escalation.

In The Value of Medical Spending in the United States, 1960-2000, David Cutler attests that the “increased use of medical therapies has led to increased medical costs” (Cutler, 2006). Cutler uses  cost-benefit analysis to compare gains in life expectancy against costs incurred, concluding that “although medical spending has increased substantially during the past 40 years, the money spent has provided good value” (Cutler, 2006). Conversely, Gerard Anderson, in It’s the Prices, Stupid: Why The United States is So Different From Other Countries, writes that the U.S does not provide more services than other countries, but suggests that “the difference in spending is mostly attributable to higher prices of goods and services” (Anderson, 2003). Another viewpoint expressed in No Reverse Gear, by Paul Ginsburg, identifies advances in medical technology, and American’s demanding attitude towards such products, as the primary driver of health care costs. Ginsburg cites the “supplier-induced-demand” as a force involved in creating a system that bypasses traditional economic models for a more cost-blind one.

In these three propositions, I believe that a very important aspect of rising health care costs in America is only barely touched on, which is the culture of America itself. While it seems straightforward to assign the increase in costs to a simple mathematical equation of increase in price and increase in quantity of services, it is interesting to investigate why these increases are occurring. There is a natural trend towards growth in many areas of the economy, but rarely do we see such unsustainable demand for goods and services. Victor Fuchs and Zeke Emanuel label this phenomenon The Perfect Storm of Overutilization,  blaming the combined factors of a “physician culture emphasizing thoroughness”; a marketplace that allows for third-party payments, direct-to-consumer advertising, and utilization incentives for physicians; and the simple fact that “US culture emphasizes the new and the fancy; old and plain is equated with deprivation” (Fuchs, 2008).

If we are to “fix” the health care cost problem, it cannot be a simple restructuring of goods and services offered, nor can it be a solution only involving refinancing. These solutions would be stop-gap measures that would not truly address the root of the problem: America’s tendency to want the newest, shiniest thing. In what has been dubbed the “technological benefit of the doubt,” Americans have a propensity to trust new, and often expensive, technologies, regardless of actual increases in effectiveness in treating a disease. We see an exampled of this phenomenon when drug companies come out with new versions of their old products. For example, Claritin, Claritin-D, and Claritin Clear all have similar rates of effectiveness at treating allergies, yet each is increasingly expensive. The market provides a demand for newer medicine, and so the company supplies. It seems as though the words “new” and “improved” are forever linked, albeit sometimes inaccurately, in our collective consciousness.

To decrease costs, we would have to truly reevaluate the way Americans perceive medical care. “Thoroughness” would need to have a new meaning, one that does not include utilizing every available technology, but only those technologies whose costs are justified by the expected clinical benefit. A cultural revolution, which is undoubtedly much more difficult to achieve than one purely economic, would need to come about before America truly accepted any radical changes to the healthcare it obtains.

Libby Greismann


3 responses to “Rising Health Care Costs in America

  1. Just curious, but doesn’t anyone note how the litigation explosion contributes to some of this — including the increase in “thoroughness” (in order to avoid a lawsuit)? Everything above is definitely part of the problem, but costs first started to skyrocket when people started treating lawsuits as an alternative to buying lottery tickets.

  2. There’s been a LOT of talk about the costs imposed by litigation in the general debate about rising costs of healthcare — with doctors and republicans wishing to impose settlement caps on malpractice lawsuits, and most of us searching for ways to limit and/or decrease the causes of such litigation. Pres. Obama seems to be hedging on that topic for now, not wanting to offend doctors OR democrats. Look for the term “defensive medicine” in the news.

  3. lawandbiosciences

    Medical malpractice is not the problem. In fact, most victims of med mal never sue, and those who do sue actually don’t recover as much as the headline grabbing outlier cases suggest. Focusing on sympathetic docs is a way for big corporations to cap damages across the board (even for products liability) without looking like cold soulless machines. – Teneille

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