Health-Care Costs Are Dragging The U.S Economy

Why is health-care just so expensive?


Although the cost of health-care is not in the news as much these days as it once was doesn’t mean that it has stopped dragging the economy. Whilst the cost of health-care has decreased slightly in the last few years, the cost of health-care is still high. From 1967 to 2007, the cost of health care per capita increased around 2.36 percent each year. Now, the cost of health care increases around 1.31 percent each year.

The health-care costs as a percentage of the economy have risen continuously since 1963.

So, what does this mean for the U.S economy as a whole? Economic growth his slowed with growth in demand for health care also slowing. To make things worse, the prices has increased, meaning that health-care companies and insurance companies are taking an increasing share of economic expenditure.

From 1963 to 2007 the money that funded health-care was coming mainly from wages. The higher health-care prices of 2007 meant that the amount that a company would spend on an employee and the amount of money that that employee would take home was massively different.

Since then, the additional health-care spending has come from the U.S government, likely as a result of Obamacare. The continued increase of health-care spending will result in steep fiscal deficits or higher taxes.

To summarize, the U.S health care system is taking its toll on the economy, which is a worry in the long-term.

Why Is Health Care Spending So High?

Many economists will say that the health care spending is due to the fact that the United States is a rich country, which tend to spend more of the annual budget on health care. The more a country spends on health care, the more expensive it becomes.

But why are prices in the U.S so high for medical treatments? The easiest explanation is that American citizens pay lots because they are used to paying lots on medical expenses. The fact that citizens don’t know what is making their medical expenses so high doesn’t help.

Health-care providers have a monopoly power over most patients. For most people, the option of driving across state to a cheaper health-care center isn’t available. Economists Zack Cooper, Martin Gaynor, Stuart V. Craig and John Van Reenen have found that hospital mergers cause medical prices to increase more than against hospitals that are closer together. This means that a hospital near to another one is likely to be cheaper than a hospital on its own in a populated area.

With other developed countries, the government is the main healthcare purchaser, allowing negotiation to be made with health-care providers. It is ahas been shown by Bivens that Medicare gets better prices for health care than private plans do…

The problem with the governments approach to health-care is relating to the reliance of employers. Since 2009, employers have been contributing the same amount to health-care system, with the government spending more consistently. This means that the government is not doing much negotiating to lower the price of health care. Researchers are still unsure why the government is not negotiating prices.

To make state-wide or nation-wide health-care a success, the government must focus on negotiating prices with providers as the main focus. If the U.S continues on paying high health-care prices, employee wages and economic growth will be diminished as the result.

The U.S economy over-performed in Q3.