Why American healthcare costs are rising faster than the inflation rate
In short: In just one decade, the United States saw a staggering 30% increase in health spending when adjusted for inflation. This isn't just a rise in prices; it reflects a structural system where specific payment models and insurance designs actively encourage higher spending over cost-efficiency.
The U.S. healthcare system is defined by specific structural mechanisms that influence how money flows. Two primary drivers of high costs are 'fee-for-service' care and the current structure of health insurance. These systems often prioritize volume and reimbursement over the minimization of costs, creating a cycle where spending is incentivized by the way providers are paid and how plans are organized.
National health expenditures represent a broad category including private and public insurance, research, and public health activities. However, 'personal health care expenditures' make up the lion's share of this total, accounting for approximately 85% of all spending. These personal costs are tied directly to patient care, including hospital visits, physician and dental services, prescription drugs, and nursing home care.
Data from the Centers for Medicare & Medicaid Services shows that between 2009 and 2019, total national health expenditures rose from $2,658 billion to $3,453 billion in constant dollars. During this same period, personal health care spending grew by 31% to $2,937 billion. While out-of-pocket spending as a percentage of total costs decreased slightly from 14.1% to 12.7%, the reliance on private health insurance remains the primary funding source for personal care.
Understanding these figures requires distinguishing between nominal and constant dollars. By using 2012 constant dollars, we can see that the 30% increase in spending is a real growth in volume and cost, independent of the effects of inflation. This highlights a systemic trend where the cost of maintaining health in the U.S. is accelerating at a rate that outpaces the general economy.
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Sources
- Summary by Intellect · source: The Structure & Cost of US Health Care: Crash Course Sociology #44
- Also: Health care expenditures - Health, United States
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