Health Care Costs: A Primer

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Abstract:

Health care accounts for a remarkably large slice of the U.S. economic pie. Each year health-related spending grows,often outpacing spending on other goods and services, meaning that the size of that slice also increases. These cost increases have a significant effect on the way households, businesses, and government agencies conduct their affairs. Among other things, health inflation puts pressure on businesses who offer insurance coverage to their employees, inhibits individuals from purchasing their own coverage, can be a major financial burden to families, and takes an increasing share of government budgets and taxpayer dollars. This paper gives a brief glimpse of available data on health care costs, and summarizes the impact of spending growth on various parts of society. The National Health Expenditure Accounts (NHE), which is the source for several of the analyses below, present the costs of care by type, such as hospital care, physician services, or prescription drugs, and also show spending by payer, such as the amount contributed by private insurance, Medicare, Medicaid, or the individual patient. Results from both the Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits Survey and the Medical Expenditures Panel Survey are also shown to help explain how health costs are distributed among families. Finally, we conclude by discussing some commonly-held explanations for why health care costs have grown over time.