Lowering Health Care Costs

Lowering Health Care Costs

Health care expenditures is an increasing proportion of gross domestic product (GDP) in Organization for Economic Cooperation and Development countries as its share in GDP increased by an average of nearly 2 percent annually in last 40 years. Health care expenditures in the US increased 6.2 on average annually between 1991 and 2011. Health care spending consisted 17.9 percent of GDP in the US in 2011.

There are many elements affecting increases in health care costs. The proportion of old people in the US population increases and aging population can raise health care expenditures. Because, compared to younger people, older people use more health care services as they are more likely to have non-communicable diseases. Non-communicable diseases are not caused by infection and they cannot spread among people such as, heart disease, asthma, diabetes, and cancer. Health care costs for non-communicable diseases is expensive and these diseases continue for a long period of time which shows that health care expenditures will rise due to aging of population.

Increasing prices for medical treatments, consultations, and drugs is another element in increasing health care costs. Increasing prices of health care services and drugs were the main reason for increasing health care expenditures between 2009 and 2010. Poor productivity is another element of increasing health care costs. Because there is little or no intervening growth in productivity gains for health care, health care costs would increase over time; and because of inelastic demand health care expenditures would also increase (Baumol, 1988). Because it is difficult to measure value of health care service, it is very difficult to evaluate productivity gains in health care. Referring productivity, administrative costs both for health care service providers and insurance companies constitutes more than a third of health care expenditures in the US and at least half of total amount of it...