Health care costs concern Americans most

By JIM ABRAMSAssociated Press Writer

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8

10

12

14

16

18

20

1980 1985 1990 1995 2000 2005 2010

Source: CMS, Office of the Actuary, National Health Statistics Group.

Calendar Years

Per

cen

t o

f G

DP

Actual Projected

Between 2001 and 2011, health spending is projected to grow 2.5 percent per year faster than GDP, so that by 2011 it will constitute 17 percent of GDP.

National Health Expenditures as a Share of Gross Domestic Product (GDP)

Health Care Problems

• Most Americans see health care and insurance costs as a more pressing problem than malpractice lawsuits, a survey says, although the Bush administration often cites litigation as a reason for high medical bills.

• The Kaiser Family Foundation, a nonprofit organization that studies health care issues, and the Harvard School of Public Health said reducing malpractice jury awards ranked 11th on a list of 12 items people thought should be health care priorities for the president and Congress.

• Named most often, by 63% of respondents, was lowering the cost of health care and insurance, followed closely by making Medicare more financially sound and increasing the number of Americans with insurance.

Drug Expenditures• The survey found that 73% favor

changing the law to allow Americans to buy prescription drugs imported from Canada. That change is strongly opposed by the pharmaceutical industry, and the administration says it is too costly to do safely.

• Four out of five surveyed also want the government to negotiate with drug companies for lower prices, a practice expressly banned by the Medicare law enacted in 2003. Among those 65 and older, 46% viewed that new law unfavorably, against 29% with a favorable impression. Four-fifths of those seniors said the law was too complicated for people to understand.

36.5

25.2

1.8

5.87.6

23.1

31.7

25

2.5

9.4

7.1

24.3

0

5

10

15

20

25

30

35

40

Hospital Phys. & OtherProfessionals

Home Health PrescriptionDrugs

Nursing HomeCare

All Other

1990 2000

Expenditures for Health Services, by All Payers

Per

cen

t S

har

e

Calendar Years

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group.

In recent years, the hospital share of total spending has decreased while the prescription drug share has increased.

1.52.3

1.42.0

11.2

6.0

2.9

3.4

0

2

4

6

8

10

12

14

1980-1982 1982-1993 1993-1999 1999-2000

Utilization Medical Prices

Factors Accounting for Growth in Personal Health Care1 Expenditures Per Capita

Selected Calendar Year Periods

Ave

rag

e A

nn

ual

Per

cen

t C

han

ge

2

1 Personal health care spending comprises therapeutic goods or services rendered to treat or prevent a specific disease or condition in a specific person.

2 Utilization includes quantity, quality, and mix of services. As a residual, this factor also includes any errors in measuring prices or total spending.

Note: Medical prices are calculated using the personal health care chain-type index constructed from the producer price index for hospital care, nursing home input price index for nursing home care, and consumer price indexes specific to each of the remaining

personal health care components.

Source: CMS, Office of the Actuary, National Health Statistics Group.

The most important factor accounting for the slowdown in personal health care expendituregrowth after 1993 was the decline in medical price growth.

The Economics?

What leads to changes in health care costs (expenditures)?

Thought Process:

Expenditures = Price x Quantity

Suppose that Expenditures = $900 billion

If Price by 3.4%, and Quantity by 2.0%

THEN:

New Exp = (1.034 x Price) x (1.02 x Quantity)

New Exp = (1.034 x 1.02) x Old Expenditures

New Exp = (1.055) x Old Expenditures