Reasons for rising health care costs are many

PHILADELPHIA — Lots of us think we know why American health care costs are rising faster than a speeding bullet, or at least faster than our gross domestic product, incomes and inflation.

It's because we're such profligate users of medical care. We run to the doctor at the first sign of a sniffle and demand heroic treatment until our final days.

We may cringe at the bills, but we're all after pain-free immortality. Plus, we've built the best health care system in the world.

Industry experts see a much more complicated picture. Americans actually see doctors and stay in the hospital less than residents of other industrialized countries, they say. Our costs are high for a constellation of reasons involving relatively uncontrolled prices, insurance that masks real costs from consumers, heavy use of technology, wide variations in care and excessive administrative costs.

Making a dent in this problem, as Washington is discovering, is a tough, disruptive job that not only would change the way people get care, but also threaten the livelihood of powerful vested interests.

"Your cost is my income," Tom Getzen, a health economist at Temple University, pointed out. "Real cuts, the kind of cuts that count, are also the kind that hurt."

Health care experts are divided on the best approach, with some saying a more rational use of resources could curtail spending and others saying the only effective solution is price control.

Uwe Reinhardt, a health economist at Princeton University who falls into the latter group, sees little in the health care packages under discussion that would rein in expenses.

"For bending the cost curve, there's really nothing in there but a few little hopes and a few little prayers," Reinhardt said.

A 'modern miracle'

Our cost curve is a thing to behold. While health spending has grown faster than GDP by half a percentage point a year in other rich democracies, it has averaged an extra 2 percentage points in the United States, said Jacob Hacker, an expert on the politics of health policy at Yale University.

Getzen said health spending in the United States began ramping up in the mid-1950s, even before the advent of Medicare.

People saw medical care as a "modern miracle," he said. "This was the promise of the future, and it was great."

Health spending — now $2.2 trillion — accounts for 16.2 percent of GDP. We spend an average of $7,421 per person, even with millions uninsured. Other countries average far less and cover almost everybody. Generally, experts said, care here is not markedly more effective.

Economists say that health care spending tends to rise with income everywhere. Even taking that into account, though, the United States spends about $2,000 per person per year more than expected based on income, Reinhardt said.

Much as we might like to blame some of that on excessive spending in the last year of life, economists say that's not a major cost driver. Joseph White, an expert on international health care at Case Western Reserve University, said the proportion of Medicare spending in the last year of life has been consistent for decades.

"Do we spend a lot of money at the end of life? Yes," he said. "Do we spend a lot of money on people who are really sick? Yes. That's the whole point. That's why you have insurance."

Insurance itself has driven spending, some experts said, not only by making it possible for customers to get more care while insulating them from the cost, but by making it safer for companies to risk developing expensive new machines and for hospitals to buy them. Other countries have more insurance than we do.

The big culprits

Our administrative costs, though, are through the roof, the result of having so many insurers with different rules and forms. The McKinsey Global Institute estimates that we spend six times more on administration than other developed countries.

"We have without any question the most complex, bureaucratic health system in the world," Reinhardt said.

That leaves the big culprits, resource use and prices.

We do use more technology, which researchers define broadly to include medicine, devices and techniques. Over the years, new technology has improved care. But American doctors and patients too often assume that "more is always better," said Elliott Fisher, director of the Center for Health Policy Research at Dartmouth.

We are far more likely than people in other countries to get MRIs and CT scans, cesarean sections and knee replacements, Mark Pearson, head of the health division of the Organization for Economic Cooperation and Development, recently told the Senate Special Committee on Aging.

Other experts said the main reason we pay so much for health care is that we have done a lousy job of controlling expenses compared with other countries.

"Our prices are higher for everything," said Jonathan Oberlander, a University of North Carolina expert on social medicine and health policy.

Oberlander and White argued in the New England Journal of Medicine last month for a system where all public and private insurers pay the same rates to doctors and hospitals.

"What I would say is that if countries want to control health care spending, then they should have spending controls," Oberlander said.

In other countries, someone pays attention to overall cost, White said. Either there's a single payer, or payers band together to set rates. Here, everything is fragmented.

"There's no overall budget constraints, so the system's just out there blowing up on its own," White said.