1. Introduction
The health care expenditures in the United States are one of the highest among the developed countries. The studies and researches done on the topic of growing expenditures are showing the need to change the health care expenditures by introducing new policies in order to keep the health care system sustainable in the future. With the ageing population and the Medicare and Medicaid health programs the expenditures are rising and are predicted to grow beyond the governmental budget capabilities in the near future. The paper will examine the reasons for the high costs of the health care and the main drivers behind the costs. The focus will be on the academic literature review on this topic in connection to two policies and studies of Medicaid and Medicare. The paper will examine the reasons for the increasing health care expenditures in the United States. The thesis of the paper is: the main reason for the unsustainable governmental health care expenditures in the United States is ageing of the population.
2. High costs of health care
The Medicare program has been highly debated in the public. Under the Medicare all American aged 65 are eligible for the governmental health insurance program. Under the program the elderly are eligible for most of the health costs such as doctor visits, hospital stays, pharmacy and other services. This result in vast differences among age groups, where the younger populations are using privately purchased or employers provided insurances or have no insurance at all in comparison to elderly that all have health care insurance under the Medicare. Health care in the states is in majority still privately provided. The inequality is seen between different ages and also among the income distribution (De Nardi et al., 3-6). Beside the Medicare the Medicaid is one of the most important health programs, which covers the majority of the nursing home costs for the elderly. It is a health care program for low income individuals with the limited resources. Both program expenditures have been on the rise from the year 1970 onward (De Nardi et al., 5-7). Both programs are health programs where Medicare is meant for elderly and disabled people and Medicaid is meant for people with limited resources and income of every age. The first is an insurance program and the second an assistance program. They differ in the governance where the federal government is governing the Medicare and state governments are governing the Medicaid. Each state creates its own Medicaid program. People are eligible for Medicaid based on the state rules where some benefits are mandatory and many of them are optional and can include care and services and are based on the individual income. Among mandatory provisions are care and services in hospitals, nursing facilities and health centers, along with the visitors to doctor, nurse, pediatric and family nurse services.
Along with the high costs for the elderly overall costs for the health care in 2004 resulted in 16% of GDP. The high costs will grow further. The predictions for the future are estimated to increase for 30% by the year 2050 (Wang, 429). Based on the Wang (429) the major factors that contribute to the health expenditures on the state level are gross state products, elder population over 65, number of hospital beds and level of urbanization. The price of health care expenditures differs across the states and is not directly connected to the resource’s state puts into the health care. There have been various factors identified which contribute to the growing of the health care expenditures in the literature, but the study found that those four have been statistically correlated with the increased health care expenditures. Other factors identified in the literature assumed to impact the health care expenditures are real per capita health expenditures, real per capita gross state products, the relative price of health expenditures, the proportions of the population without the health insurance, population under the age of 17, the share of health care expenditure financed by Medicare and Medicaid, the proportion of enrollment in Health maintenance organizations, ratio of female labor participation, population living in urban areas, number of hospital beds, active physicians, medical use and practices styles (Wang, 430).
One of the major contributors to the health costs rising are Medicaid and Medicare programs. Davidson (23) pointed out that both programs are not sustainable in the long term for the health care expenses will drain the health care budget if no change will be implemented. The comparison with other countries shows that United States economical markets without the government control over the medical care providers is not compatible with such medical programs and that is why other developing countries do not have the same problems with paying the health care of their elderly. The author presents Paul Ryan voucher program proposals what should be done in order to prevent the growing medical-costs. The proposal limits the governmental expenditures and transfer payments to the seniors which should pay a part of the medical coverage. This solution based on the authors arguing shortens the life expectancy, but is needed for the future economic stability (Davidson 22-25).
The reason why the programs are not sustainable can be seen in the growing number of Medicare beneficiaries. “Between 2010 and 2030 the number will grow from 46 million to 97 million, a 17.7% increase in just 20 years” (Callahan, 11). Along with the increasing number of beneficiaries the number of people paying taxes for Medicare will decline and “the costs of the program will increase from $503 billion to $937 billion, a 93% rise” (Callahan, 11). Over time various foundations and researches warned about the unprecedented health care expenses, but there were no policies, no solutions seen along with the annual rising of health care costs from 6 to 7%. Based on the Callahan (12) the Medicare expenditures could resolve in financial crisis. The proposed solutions are reduction of benefits, or possible increase of taxation as a short term policy. There is a possibility of reduced health in order to achieve the financial sustainability. The policy should be implemented to rationing which is currently done by doctors and individuals. This should be done in a way of examining the connection between the life years the technology can bring and quality of life provided with those technologies. It should be done in a transparent and democratic way and not based on the age. Ageing is the most important factors behind the growing costs. “Some 65% of our health care system costs are incurred by 20% of our population, mainly the elderly, dying slowly of chronic illnesses” (Callahan, 13). From this it is seen that the elderly population has in the country gained unequal share of medical provision in comparison to younger generations. Beside the public debate which will enhance the acceptance of the policies to reduce the health care cost and the open response of the medical community can help to improve the situation. The cooperation in the health care is needed. There has been public support for the health reform, but the public is not inclined to the growing taxes or cutting the benefits, which are two core reasons, the politics did not implement any solutions. There are various challenges ahead and the concern is that the physicians will be put in awkward situations, which would not be in accordance with their medical ethics, but with the procedures and fairness this could be overcome. The ration is needed and only the tactic has been yet unknown (Callahan, 10-15).
The rising health care costs have been found by all studies, also by the De Nardi et al. (1) since they discovered that medical expenses more than doubles between ages of 70 and 90 and that “the top 10% of all spenders are responsible for 52% of medical spending in a given year” (De Nardi et al., 2). The inequality is shown in the government paying for around 65% of the elderly medical expenses. The elderly are responsible for a greater proportion of the costs. The study showed that the poor use more services as rich people. In comparison to the previous study done on all OECD countries the authors (De Nardi et al., 3) found that the medical expenses before death constitute only a small percentage of total spending and are not regarded as an important factor that contributes to the increased health spending. In 2014 the personal health care expenditures resulted in the $2.5 trillion, which was 14.7 of the national GDP and calculation shows that per each person the medical expenses resulted in $7.930 (De Nardi et al., 7-8).
There have been also other factors that contribute to the rising health care costs in the states identified and shown to have a great impact. Based on the Meier (1971) the reasons for the high health care costs can be found in the unmatched professional training with the needs of the ageing population, free services focused on the quantity rather on quality and the low ration of social medical spending. The solution should be based on the cooperation and sufficient supply of geriatrics and palliative care professional improvement. The patients of those professionals are rather minor covering only 5%, but account for half of the health care expenditures (Meier, 1971-1972). The factors that contribute to the health care expenditures are demographic and non-demographic. The demographic factors that impact the health care expenditures are age structure and the evolution of health status. The most important non-demographic factor is income. The rising costs result in the calculation where by the year 2020 it is estimated the health costs will increase by 20%. Despite the high costs spent the states are ranked only on the 40th place based on the important health care outcomes (Meier, 1970-1971).
All different factors are presented in the Figure 1 in the appendix, which is showing the holistic presentation of the costs (Maisonneuve and Martins, 64) which are combined of demographic determinants, income and residual health care expenditures. The age structure and health under the demography have already been mentioned where the residual growth combines the relative prices, technology and institutional policies which also impact the costs. All mentioned factors were taken into account in the accounting analysis during the period of years from 1995 and 2009. For the United States the data show that the major contributors to the increasing costs were residual following by the income and the least impact had the age structure. The average annual percentage contributions to the spending in 15 years resulted in the 2.8% of residual, 1.5% income and 1.2% age average change. From this information it is seen that demographic drivers are not the major contributors to the increasing health care costs in the United States. From the dispersion of health care expenditures the elderly are responsible for a greater share of the health care costs among all developed countries, where the growth begins to unprecedented rise between 65 and 72 years and greatly increases after the age of 82 onward. This is resulting from the growing of the older population in comparison to the young (Maisonneuve and Martins, 64-67). Based on the Maisonneuve and Martins (68), “it is not ageing per se that pushes up average health expenditures, but rather the fact that mortality rates increase with age”. The growing health care expenditures were predicted to grow also in the scenarios under the cost containment in the OECD countries, which is showing that the future health care cost containment scenarios will not have a major impact on the increasing costs and that other actions and policies are needed (Maisonneuve and Martins, 62-63). The OECD research (Maisonneuve and Martins, 61) showed that the debt is increasing with the health care expenditure growth. The long term observance of the costs has shown that the recession or GDP decrease or stagnation does not impact the health care expenditures since they keep on increasing. High health care costs in the United States are causing concern in the light of an aging population, which will in the future enhance the pressure on the government budget. The future predictions are different and are based on various scenarios. Longer term projections are uncertain because of various reasons. There are various risks connected with the increased spending such as an extension of the pre-death period, induced higher spending by technological development, and possible higher spending because of the increasing dementia or obesity trends. The treatment might improve in the future, but all spending projections are showing the importance of policy implementations and their limitations which will cause future challenges. Based on the scenarios by the year 2060 the United States are facing cost pressure of increasing long term care spending for about 14.2% and with implementation of the cost containment policies the country would still face the increase of 9.9% . The increased expenditures could result in the decreased life expectancy (Maisonneuve and Martins, 80-91). This increase will greatly impact the expenditures also among the elderly. The future can be foreseen in the increased governmental expenditures for health care based on the current implemented policies which will drastically impact the health situation in the country. In order to achieve sustainability, the drastically changes are needed in the whole health system. Those changes can have a negative impact on the life expectancy, decreased benefits and limited insurance coverage that must be balanced between the young and elderly population.
3. Conclusion
The governmental health care expenditures based on the literature review covers only a small part of the population. It has been proven that the minority of the population consumes more medical goods and services as the majority. The elderly and individuals with low income are under the Medicaid and Medicare eligible for the specific health insurance under the governmental taxes, which have drastically risen over the years. The prediction for the future are concerning for one have even assumed this could lead to the higher national debt and even further into the financial crisis. The arguing from different authors have shown the same results of unsustainable health care expenditures in the country, but the reasons for the growing costs and provided solutions differed. All were the same opinion that changes are needed in order to reach the stable economy in the future. The thesis of the paper was that the reason for the unstainable government health care expenditures is ageing of the population. The thesis cannot be fully confirmed since the sole ageing population is not the main culprit for the existing health care expenditures, but rather the politics and policy in this area that has led to the current situation, which threatens the future health care system sustainability. Beside the demographic structure, there are also the other important factors that impact the growing health care costs, such as new medical technology, income and relative prices, institutions and policies in this area. The elderly population is un-doubtfully the major consumer of the government provided health care insurance under the Medicare and Medicaid. The demographic structure will play a major role in the future with the aging population along with the policy and politics accepted in this area. The statistical data has shown that current policies must be adopted and changed in order to have a financially sustainable health care insurance, but there has been no debate and no progress seen in this area since no one wants to give up their right to the current health care benefits. Changes in the health care are needed and those changes will have the most impact on the elderly in order to decrease the health care costs and costs spend for the expensive medical technologies. Medicare and Medicaid as one of the most important health care insurance and assistance programs will need to address the issues of the growing health care costs in order to limit them. The cooperation among a state actors, institutions, citizens and health experts is needed to prevent the national predictions of costs for the future. The future policies should take all important studies on this area into an account in order to derive to the policy that will be the most appropriate, effective and efficient.
4. Work cited
Callahan, Daniel. Must We Ration Health Care for the Elderly? Journal of Law, Medicine & Ethics. 2012: 10-15.
Davidson, Paul. Aging Population, Health-Care Costs, and the National Debt. 2013. Challenge, 56(4): 22-25.
De Nardi, Mariacristina, French, John, Jones, John Bailey, MyCauley, Jermy. Medical Spending of the U.S. Elderly. 2015. National Bureau of Economic Research. Web. < http://www.nber.org/papers/w21270>.
Maisonneuve, Christine, Martins, Oliveira. The Future of Health and Lon-Term Care Spending. 2015. OECD. 2014: 61-91.
Meier, E. Diane. Focusing Together on the Needs of the Sickest 5%, Who Drive Half of All Healthcare Spending. 2014. Jags 62(10): 1970-1973.
Wang, Zijun. The Determinants of Health Expenditures: Evidence From US State-Level Data. 2009. Applied Economics 41: 429-435.
Appendix
Figure 1 Factors that contribute to the health care expenditures
Source: Maisonneuve and Martins, 64.
