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March 15, 2004: Health Spending Grows, Out-Of-Pocket Share Falls

March 15, 2004
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WASHINGTON - According to a report by Robert F. Bennett, chairman of the Joint Economic Committee of the United States Senate, health care spending has become a serious concern in this country. After slowing somewhat in the mid-1990s, the growth of health spending has once again begun to outstrip economic growth.

In 2003, for example, national health spending grew twice as fast (6.2 percent adjusted for inflation) as the overall economy (3.1 percent). Some of this increased spending is due to advances in health care and modern treatment. However, rising costs are pricing some Americans out of the health care market and impose increasing burdens on taxpayers, wage earners, and employers, noted Bennett.

Health spending has grown substantially over the last 40 years, with real spending per person increasing almost seven-fold, Bennett indicated. While a number of factors have contributed to this rise, one of the most significant has been the reduction in the share of health care payments that individuals make out of their own pockets.

In 1960, Americans paid almost half of their health care expenses directly out of their own pockets; today they pay less than one-seventh of the cost out of their own pockets, related Bennett. The rest of their health care costs are paid indirectly - through health insurance premiums and through the taxes that fund Medicare, Medicaid, and other public health insurance systems.

The expansion of public and private health insurance programs has significantly improved the quality and availability of health care in the U.S., but those gains have come at a cost - increasing insurance coverage has also weakened the link between consumption and payment, remarked Bennett.

Today, the perception of most Americans is that their health care is paid for with someone else's money, Bennett commented. This third-party could be an employer, a private insurer, or the government. Most working Americans and their families receive health care through an employer because of the tax advantages of employer-provided health insurance. For many decades, the tax "subsidy" for health insurance has led to widespread purchase of low-deductible, comprehensive plans offered by employers.

As the level of coverage increases, more payments are made by third-parties and people lose direct control over spending decisions. The result is that consumers have less of an incentive to take cost into consideration when purchasing health care services, Bennett pointed out. In addition, this trend has encouraged the use of more costly technology because greater coverage levels mean more patients and doctors can turn to more expensive high-tech diagnostics and procedures without considering other options first, he added. Although increased spending on health care has delivered significant benefits to many Americans, its growth rate may outstrip the resources of employers to finance it.

In recent years, consumer-driven health care approaches have attempted to control future spending increases by changing how Americans think of health insurance. The purpose is to reduce the top-down control of third-party health care. Giving individuals greater control over their health care decisions should help strengthen the patient/physician relationship, improve accountability, and ensure consumers receive maximum health care value without maximum dollar outlay, Bennett concluded.

Publication date: 03/15/2004

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