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Trends, Costs  in Healthcare

Trends in Costs for Healthcare

Ron Paul summarizes well the circumstances we have in healthcare, in this video:

One should look at the numbers at Data, to gain an informed view of what we do have today.  Also it is most apparent that cost shifting to other parties is very prevalent here.   Medicare sets the expectation that the service is free, sets a lower than market price, and then the hospitals and doctors shift the difference either to the customer or to other payers, meaning insurance.  This complexity further reduces the market competitive forces.

Trends in a Spreadsheet:  One can also play with the numbers in the spreadsheet Costs Over time to see what has occurred. 

How to Reform:  McKinsey provides their view in 3 Imperatives to improving costs in Healthcare, in this PDF file.  Also there is a pie chart for 2007 on where the health dollars were spent. 

Historical Perspective:  The history over time is also very key to understanding the drivers of cost over time.  This page details some very key history.  Price Water House did an extensive analysis of what drove the cost increase in healthcare in 2005.   It rose 8.8% that year, and 43% of that increase was due to increased utilization.

Motivations over time from the different sectors in Healthcare have become quite distorted:

  • Pharma / Device “My job is innovation that helps people . . . it's up to the doctors to control use.”
  • Payers   “We want to pay for the right things there’s things, but there s little data…and our customers want us to control costs.”
  • Clinicians  “My job is doing everything I can to help my patient . . . if I say no to studies, I might get sued.” 
  • FDA   “Safety, not cost effectiveness, is my job.”
  • Consumer-Patient   “I want the best of everything. Don’t ask me to pay more.”

Regulation is also a key cost driver, see Cato and Heritage articles.

Conclusion: there is a great deal of complexity in the current system (charts on Current and future Obamacare), and if costs are to come down it should be by using competition, not mandates.