5 Major Factors Driving Healthcare Cost Increases

5 Major Factors Driving Healthcare Cost Increases

Why have healthcare costs increased so sharply in recent years? A new study has some clear answers. Learn more in this article.

According to the Journal of the American Medical Association (JAMA), healthcare spending increased by $933.5 billion from 1996 to 2013, with over 50% of that figure coming from pricing and intensity increases. In 2015, healthcare spending accounted for nearly 20% of the United States economy. The goal of the study was to gain a clearer understanding of why healthcare costs have increased so sharply and help inform policy efforts to prevent future price surges.

Details of the Healthcare Study

The study, which was released in November, took five factors associated with healthcare spending into account: population growth, population aging, service price and intensity, disease prevalence or incidence, and service utilization. They then analyzed and determined the reasons behind these increases or decreases. The authors of the study compiled their data from 155 health conditions, 36 age and sex groups, and 6 types of care from the Global Burden of Disease study and the Institute for Health Metrics and Evaluation’s US Disease Expenditure 2013 project. The $933.5 billion increase was adjusted for price inflation and was based on inpatient and ambulatory care, retail pharmaceuticals, nursing facilities, emergency department visits, and dental care. 

Breakdowns of Healthcare Factors and Cost

Of the five factors studied, only one accounted for a decrease in spending, while three accounted for an increase. One factor was not associated with a noticeable difference in spending.

  • The increase in the United States population from 1996 to 2013 accounted for a 23.1% increase in spending, which amounted to $269.5 billion.
  • Aging accounted for an 11.6% increase, which amounted to $135.7 billion.
  • As mentioned earlier, pricing and intensity accounted for a 50% increase in spending, which amounted to $583.5 billion.
  • Service utilization did not account for a statistically significant change in spending.
  • Disease prevalence or incidence actually accounted for a decrease of 2.4%, which amounted to a $28.2 billion decrease in spending.

Conclusions From the Study

According to the researchers, the results of their study aligned with their expectations. For instance, as more and more Americans are living longer, that will lead to an increase in spending. The same is true for an increasing population: more people means more money spent on healthcare. Conversely, as our healthcare system focuses more on prevention rather than treatment after a disease has already taken hold, spending should decrease. 

The fact that utilization didn’t account for a noticeable change might appear anomalous, but insurers only recently began steadfastly upping their efforts toward cost-saving policies, flexible and diverse benefit designs, and payment changes. And since this study only accounted for the years 1996 to 2013, we should expect to see utilization play a major role moving forward. The Affordable Care Act was also not fully implemented for the years examined in this study, but that legislation would have impacted the research in both positive and negative ways as well. 

The Bottom Line

A 43% increase in overall healthcare spending in a 17-year timeframe is alarming but also not completely unexpected. The cost of healthcare has been a major issue for Americans for decades, but it is now considered one of the leading deficiencies in our healthcare system. During the late 1990s, HIV/AIDS was listed as “the most urgent health problem” in the United States. As recently as 2008, accessing medical services was top of mind. Today, nearly 60% of Americans “worry a great deal” about “the availability and affordability of healthcare.” 

Where healthcare spending goes from here is anyone’s guess, especially given the current political climate, but another JAMA article suggests that implementing an Affordability Index could be a viable solution. It’s fairly simple: Divide the average cost of an employer-sponsored plan by the median household income to create a corollary between health insurance and income. In 2016, this number was 30.7%. In 1999, it was 14.2%. Costs continue to rise and continue to adversely affect health outcomes among average Americans. Unfortunately, as it stands, the Affordability Index only accounts for employer-sponsored plans and does not include ancillary costs that further increase the burden on lower- and middle-class Americans.

Canopy Health: Striving to Improve Care and Lower Costs

The Canopy Health alliance includes almost 4,000 providers, 15 hospitals, and even more care centers across the Bay Area. Our affiliates are implementing successful care models that improve healthcare quality and lower costs. And the efficiencies we create can be passed on to clients through lower premiums.

To speak with someone about the Canopy Health network or our insurance offerings, please call 888-8-CANOPY. We look forward to speaking with you!

References:

Dieleman, J.L., Squires, E., Bui, A.L., & et al. (2017, November 7). Factors associated with increases in US health care spending, 1996-2013. Journal of American Medical Association 318(17), 1668-1678. Retrieved from https://jamanetwork.com/journals/jama/fullarticle/2661579

Ezekiel, E.J., Glickman, A., & Johnson, D. (2017, November 2). The Affordability Index. Journal of American Medical Association. Retrieved from https://jamanetwork.com/journals/jama/fullarticle/2661699

Masterson, L. (2017, November 8). Price increases, population growth drive majority of rising healthcare spending. HealthcareDIVE. Retrieved from https://www.healthcaredive.com/news/health-care-costs-rising-prices/510434/