Healthcare Cost Containment

Over the past 40 years, healthcare expense inflation has increased roughly twice as much as in the average consumer price index. A number of factors have contributed to this escalation, including the following (arguably the primary impetus):

  • The world’s population has been aging. It is well documented that the need for medical care increases as a person grows older. Some estimates indicate that in the last two years of life, a person spends more on healthcare expenses than at any other time. Further, more and more people are living longer; therefore, the number of older people is growing and, so, the cost of healthcare is rising at unprecedented rates.
  • Medical technology, along with technology in a general sense, has expanded rapidly over the past 25 years. Technology-based medical treatment is now widely used; however, these procedures are expensive. Therefore, a widespread use of technology in medical procedures greatly adds to this escalation in costs.
  • Most healthcare benefits plans designs for plans, provided by employers to employees have been generous in their provisions; employers are providing first-dollar benefit coverage. As a result, this coverage has been used liberally, for conditions of any type regardless of need. There has been little incentive to avoid expensive care.
  • In the past two decades in particular, we have seen an increase in new and unusual diseases; this phenomenon was first made evident with the spread of AIDS. These diseases require an extraordinary amount of research and development cost outlays. Further, treatment costs are very high.
  • We live in a litigious society, witnessing an ever-increasing number of malpractice lawsuits; these have been an expensive proposition for doctors and hospitals. They have protected themselves with increasingly high-premium malpractice insurance policies. The costs of these policies were tacked onto the costs of medical services.
  • Pharmaceutical development has resulted in a bevy of new drugs, the costs of which have been very high. These costs are usually passed on to consumers.
  • The steadily increasing number of underinsured (and uninsured) who require care adds indirectly to medical costs. Hospitals, doctors, and insurance companies are forced to pass these costs on to paying employees. The Patient Protection and Affordable Care Act attempts to address this.
    Note that controlling the costs outlined here has occupied the attention of corporate executives and national policymakers alike. The focus of national policy has led to certain changes to the tax code in an effort to curb them. In addition, corporate executives have introduced various programs into their companies to do the same. The most direct and concrete concepts at use here are known as utilization reviews.

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