Expenditures and Cost Controls

Since 1960 in virtually every country expenditures for personal healthcare services have been rising in absolute terms and in relation to GDP (Anderson et al.). Health expenditures have been increasing at a rate nearly double that of other major sectors of some national economies. In some countries concerns are being raised that spending on medical care is occurring at the expense of other socially desirable goods and services. This is especially true in the United States, where despite the highest per capita and GDP-adjusted healthcare spending in the world, healthcare is still not accessible to all, and there is growing concern about other social problems such as deteriorating schools, homelessness, poverty, and crime.

One reason for controlling health spending is that there is strong evidence that more healthcare spending does not necessarily buy better health (Newhouse). Even more compelling is the growing evidence that a substantial number of medical-care services may provide only small marginal benefits. Although small benefits and high cost are the norm in industrialized countries, many developing and economically disadvantaged countries cannot provide their populations with even basic public health measures such as immunization and sanitation.

In many industrialized countries cost controls have created the potentially unpopular phenomenon of waiting lists. Some countries, notably the United Kingdom and the Scandinavian countries, have implemented a policy of increasing health spending to eliminate waiting lists.

The response of different healthcare systems to the growing problem of cost has in general reflected the basic organization and values of each country. In countries with strong central control there has been increasing pressure to create fixed budgets and establish tight control over the acquisition of advanced technologies (supply-side control). Access to basic health services for everyone has been maintained at the expense of not providing expensive services that are potentially lifesaving for a few individuals.

By contrast, in the United States there are relatively fewer advocates for global budgeting. Efforts to reduce costs have focused primarily on enhanced competition (demand-side control). These cost-control mechanisms appear to have produced some one-time reductions in healthcare spending but have had a very modest effect on the rate of growth of expenditures.

Because of the seemingly inexorable rise in costs in the United States, employers have been shifting more of the cost of healthcare to employees by increasing employee-paid premiums, eliminating coverage for dependents, increasing copayments and deductibles, or eliminating coverage altogether. The response of private insurance companies to growing cost concerns has been to refuse to insure high-risk employees (medical underwriting) or to tie premiums directly to the previous year's expenditures by a particular group (experience rating). Employers became more aggressive in eliminating benefits such as health insurance for retirees when the labor market became looser and profits decreased. All these factors, along with a rise in the number of part-time workers and employment in small, nonunion service industries that lack medical benefits, have been primary determinants in the increase in the number of working-age individuals in the United States who are without health insurance.

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