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Health Care Spending in the USA


This study focuses on the health care spending in the U.S. Over the past 25 years, the U.S has witnessed an increased expenditure in healthcare than fellow industrialized nations. This is attributed to several factors which if not dealt with will see the cost of health care rise beyond the reach of an average American family. The study also explores some of the options the government can exploit to avert massive spending in health care.


Most Americans believe that their health care system is the best in the world, despite its numerous challenges including coverage and cost. Studies show that over half of the American citizens (55%) receive better health care than other nations in the world. Despite these benefits, US Health Care spending has risen very fast in the last decade putting a lot of pressure on families, companies, and the state budget. Economic analysts argue that the expenditure in the health sector has risen much faster than the economy and income of average Americans. Particularly, insurance administrative operating cost has risen more rapidly than any other components of healthcare expenditure, while pharmaceutical expenditure has gone up faster than expenditure on other health care services (Cutler et al., 2006).

The United States spends about 16% of its national income on healthcare, compared to 8% to 10% in most developed countries. It also spent $6000 per capita on health care which is more than twice the amount spent in other developed nations according to the survey conducted in 2004. The center for Medicare and medical services predicts an increase in healthcare spending beyond the GDP in the coming ten years if nothing is done. The difference in cost and quality from state to state is the main factor behind the overall trends, designating opportunities to enhance efficiency (Woolhandler et al., 2003).

Since the year 200, the mean health insurance premium for employer–based insurance has risen to over 80 %, while for those with average income has gone up by 115-putting a lot of pressure on the finances of both families and employers. In a matter of fact, high insurance premiums and the rising cost of treatment are the main concern of the majority of Americans. With additional growth in health care accessibility, private insurance, and individual healthcare spending, the government and the rest of the Americans will be forced to make very difficult choices in healthcare budgeting (Families USA, 2005).

High expenditure on the new health care technologies has enhanced the quality of life and increased the life expectancy of Americans. Long and healthy life is regarded highly, and estimates point out that the economic benefit of enhanced health care surpasses the necessary expenditure on health care. Except there is also proof of considerable waste and lack of efficiency throughout the U.S healthcare system, as well as the proof that some regions in the U.S that spend too much on health care have no better health results (Cutler et al., 2006).

In 2005, health care spending rose by 7.0%, a figure lower than the average 85 average increase in 2005. Even though these figures show some slow down in healthcare spending, the expenditure continues to grow more rapidly than the economy and the average earning of the Americans. The rise of health care costs over the recent past has been attributed to higher administrative costs in private insurance, high prices of drugs, and opposition from hospitals and health practitioners to the rates of payment of the health care plans and public programs (Woolhandler et al., 2003).

Over the past two decades and a half, private health care expenditure has risen at an annual rate of 8.6% relative to 8.9% for the public programs. This difference reflects two factors: The increased enrollment in Medicare as the American population has grown old and the increased enrollment in Medicare and the State Children’s Healthcare Insurance Program as private firms have reduced health benefits for low-income earners (Woolhandler et al., 2003). Nonetheless, after making adjustments on the number of Americans covered and the array of benefits, Medicare costs per individual in the US have generally gone up faster in the public sector than in the private sector. Likewise, when comparing the per capita expenditure for the same mix of benefits, Medicare’s spending has gone up at a relatively slower rate than in private insurance over the long run. On the other hand, in the foreseeable future, particularly with the increased prescription drug benefit to Medicare, public expenditure may rise faster than the overall healthcare expenditure trend (Cutler et al., 2006).

Reasons for high health care spending

Numerous factors contribute to a high level of government expenditure in American health care. One of the factors is excessive usage, improper, or ineffective utilization of health care. Another factor contributing to excessive spending is the payment of incentives that reward the delivery of more services without taking into account the clinical worth or cost-efficiency. Another reason for high cost in health care is the setting of high prices above the competitive market level by the healthcare providers and the pharmaceutical companies. The low ratio of basic to health care specialists is also a major contributor to the high cost of health care. High overhead costs among the health providers and the insurance companies also force them to increase the cost of health care. Last but not the least, inadequate information by a portion of the American population make them victims of exploitation by unscrupulous medical practitioners and pharmaceutical companies (Woolhandler et al., 2003).

The main factors that contribute to the long-run increase in healthcare spending that may be as a result of policy adjustments include the introduction of new technologies in healthcare without taking into account its consequential costs to the consumers. An increase in wages and prices of medical utilities are also long-term contributing factors. An increase in market power and merging of health care providers and pharmaceutical companies resulted in less choice and escalated prices. Lastly, the growing prevalence of chronic diseases such as HIV and Aids has also contributed a lot to the increased health care expenditure (Cutler et al., 2006).

How to tackle the high spending in Health Care

The most desirable strategies for tackling high and increasing healthcare cost in the US entails: first doing away with the repetitive or needless care and minimizing administrative overhead. Prevention of diseases or complications through immunization and better practices, as well as detecting these conditions at early stages can also help in reducing massive expenditure in health care. Another way of reducing health care costs is by avoiding unnecessary hospitalizations and improving productivity and efficiency in healthcare provision (Woolhandler et al., 2003).

The American government should encourage its citizens to save for healthcare and pay for their healthcare insurance consistently so that the quality and accessibility of health care can still maintain a high standard in case its budget is traded off or reduced. Experiences from other industrialized and developed nations have shown that a country can considerably maintain lower per capita health expenditure and still have high-quality and accessible healthcare. US spends about 16% of its GDP on health care as compared to 8-10% in the majority of industrialized nations. Some of the methods the US government can apply to achieve these include the provision of incentives to enhance efficient and effective healthcare, restructuring health care to embrace a patient-centered system, strategic investments to enhance accessibility, cost, and coverage (Cutler et al., 2006).


The U.S is leading among the industrialized and developed nations in health care spending. Many studies conducted in the US have established that the government does not obtain value for the resources spent in health care and that the expenditure varies across the US. The increased expenditure is attributed to the high cost of medical facilities, new technologies in health care, unscrupulous medical practitioners and stakeholders, government policies among others. If nothing is done, the medical cost will rise to a level that will be far beyond the reach of an average American.


Cutler, D.M., Rosen, A.B., & Vijan, S. (2006). The Value of Medical Spending in the United States, 1960–2000, New England Journal of Medicine, 355(9), pp. 920–27.

Families USA. (2005). The Choice: Health Care for People or Drug Industry Profits. Washington, D.C.: Families USA.

Woolhandler, S., Campbell, T., & Himmelstein, D.U. (2003). Costs of Health Care Administration in the United States and Canada. New England Journal of Medicine, 358(22), pp. 2411-2412.