Health Care Spending 101

By Lissa Wohltmann

If the success or failure of an entire health care system in the United States hinges on cost alone, then this country’s health care system is a dismal failure. In the 1960s, national health expenditures were nearly $28 billion. In 2007, they grew to $2,241 billion. Since the population grew by only 62 percent during that same time period, this means the increase in per capita dollars has ballooned from $148 to $7,421.¹ With all this money spent on health, one might think that the health indicators such as infant mortality and life expectancy would be impressive, yet on a global scale it is not. Therefore, if success of a health care system is indicative on its degree of value, than this would not be a dismal failure but merely a disappointing unsuccessful venture. Compared to other industrialized nations, the percent of gross domestic product for which health expenditures are responsible, is much higher. In 1960, the percent was only 5.1 while in 2006, the percentage shot up to 15.3. Today, health care is responsible for one-sixth of this country’s economy. There are three major reasons that might account for the rise in health care costs¹: people are investing in more health care resources, higher quality health care services including high technological equipment, and increased use of insurance and higher incomes led to high health care costs in the long run.

“If the supply of health care is fixed, its competitive price rises to such an extent that the consumer is worse off in the presence of insurance than in its absence.” ²  In 1960 only 48 percent of health care costs were paid by third-party payers. Forty-six years later, that percent increased to 85¹. The technological advances in combating diseases have no doubt had an impact in people’s health of this country, yet some wonder if the financial costs are worth it. In addition, people are using more health care services whether they are through tests, consultants, or increased amounts of medications. With all of the increased use of goods and services in the health care sector, coupled with an increased population, the success or failure of the health care system is vital to the success or failure of this country’s whole economy.



Just in case you want the resources

¹ Folland, S., Goodman, A.C., & Stano, M. (2010). The Economics of Health and Health Care (6th ed.). Upper Saddle River, NJ: Prentice Hall.
² Wright, D. J. (2006). Insurance and Monopoly Power in a Mixed Private/Public Hospital System. Economic Record, 82(259), 460-468.