Since 1950, U.S. healthcare finance has changed significantly and in many ways. The changes have been especially significant in health care expenditures that have increased extraordinarily since 1950. The increase in health expenditures is linked to both public and private health insurance providers. An increase in healthcare expenditure has made policymakers look for ways to address this problem that has placed a huge financial burden on the country’s economy. As a result, various changes in areas such as payment sources and object expenditure have been implemented in an attempt to address financing issues in the healthcare system. In this paper, the changes in healthcare financing that have occurred since 1950, as well as the effect these changes have on the healthcare system, are discussed.
Payment Sources
Among the healthcare financing areas that have witnessed a remarkable change are sources of healthcare payments. Out of pocket payment for medical care services has significantly reduced over the years. However, third party payments for medical care from both public and private sources have increased since 1950 (Kamal et al., 2017). In the 1950s, medical care was mainly covered by out of pocket payments, and health coverage was only offered to the old through social welfare programs. Over the years, however, this has changed, especially after the introduction of Medicare and Medicaid. Also, the amount covered by the government has increased while that contributed by individuals has decreased. Moreover, the amount contributed by the federal government to finance healthcare has significantly increased compared to the share contributed by governments at state and local levels.
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Payments from third parties have increased mainly because of the development of expensive treatments that may put individuals at major financial risk and the fact that the contribution made by employers towards their employees’ health insurance is not included in taxable income (Altman, 2012). This type of health insurance is appealing to many people because the number of employees required to remit income and payroll taxes has increased. As a result of the increases, many employees are attracted to tax-exempt health insurance paid by their employers. Furthermore, changes in insurance from individuals to groups have led to increased coverage through reducing expenses related to marketing and administration. Mandatory participation in companies has helped limit the risk of negative choices for insurance firms. Employer-based health insurance experienced remarkable growth between the 1950s and late 1980s (Enthoven & Fuchs, 2006). For example, in the 1950s, approximately 45% of the total American population had health insurance. This further increased in 1963, when an estimated 77% of the U.S. population had hospital insurance (Enthoven & Fuchs, 2006). In the same year, more than 50 percent of the population had insurance for regular healthcare costs. However, this type of coverage came to a peak in the 1980s, and a decline began. By 2004, employer-based health insurance had reduced by 6.3 %. The increase in healthcare financing share contributed by the government is as a result of the need to provide health coverage to the public as well as the inability of the elderly population and those living in poverty to afford private healthcare insurance.
As a result of the changes in payment sources, eligible seniors, individuals from poor or low-income families, and the disabled who may not afford to pay for health insurance are covered under the government-funded health insurance programs such as Medicare and Medicaid. This has helped address the problem of health disparities and inequalities that affect different population groups such as the poor and minorities who cannot afford to pay for health insurance. More than eighty million American citizens are given health insurance every month. Despite the benefits that these programs offer, the U.S. healthcare system spends a lot of money in its healthcare system. It is considered as one of the health care systems with the highest expenditure per capita and in terms of the highest percentage of GDP. The increase in healthcare expenditure is perceived unsustainable. According to Enthoven & Fuchs (2006), 34% of the American population received medical care in 2018 through insurance provided by the government or public provision. The U.S. healthcare system expenditure is expected to increase by 5.4 percent every year between 2019 and 2028. This surpasses the annual GDP growth, which is expected to be at 4.3 percent. Healthcare expenditure in 2019 was estimated at $3.81 trillion. This figure is expected to reach $4.01 trillion by the end of 2020. All this increase is partly as a result of growth in the government’s share in providing health care insurance, among other factors.
Changes in Health Expenditure
The rapid increase in health expenditures is one of the essential economic patterns in the U.S. since 1950. The expenditures have increased by more than 31 times within the past four decades. In 1970, for example, health care cost was $355 for each individual, and by 2018, the figure had increased to $11, 172 per person (Kamal et al., 2019). In the same year (1970), the federal government spent approximately 6.9 percent of its GDP on health care, while in 2018; it was 17.7 percent of the total GDP. However, between 2017 and 2918, health expenditure reduced to 17.7 percent because the country’s economy surpassed health expenditures (Kamal et al., 2019). Between 1970 and 1980, the mean economic growth of the United States was 9.3 percent every year, while that of healthcare was estimated at 12.1 percent. However, with the introduction of the affordable care act, growth in healthcare expenditure has been relatively stable. In 1950, health expenditures were approximately 4.6 percent of the country’s gross domestic product (Kamal et al., 2019). This percentage has increased over the years, and in 2009, for example, healthcare expenditures had increased beyond 17 percent. The expenditures in healthcare have increased to the extent that controlling them is the biggest fiscal policy issue facing the United States today. Implementation of Medicare and Medicaid in 1965 contributed to the rapid increase of healthcare expenditures in the subsequent years to date. Other important reasons that led to growth in per capita expenditure in healthcare are the introduction of new health care technology and more specialization that came with the technology. For example, the period between 1974 and 2010 was marked by a significant increase in medical-related patents. The increase in health insurance offered by both public and private agencies has led to the reduced impact of medical care costs on demand.as a result of new technology, there has been a growth in health insurance. Also, the elderly population, in a small way, has contributed to health insurance growth. However, an increase in healthcare expenditure is not attributed to improved health outcomes.
Changes in Healthcare Expenditure Objects
The period between 1966 and 1973, expenditure for nursing care institutions and home-based care increased in a significant way. Increased use of the services was, to some extent, influenced by the elderly population who were receiving coverage form Medicare. During the same period, expenditures for health care facilities, doctors, and dentists increased by double. Despite the fact that non-price aspects such as utilization and frequency of services did not make a significant contribution towards growth compared to prices, these aspects increased rapidly as demand for medical care services grew. Since 1950, healthcare spending has been mainly on healthcare facilities, doctors, and drugs. In addition, the rate of increase in spending on these areas has been relatively close to that of the whole healthcare system. The amount spent on drugs has been growing slower compared to others, such as hospitals and doctors. The fact that expenditure on hospitals, drugs, and doctors has been stable is noteworthy considering the multiple and significant changes witnessed in healthcare technologies, policies related to healthcare, and medical care payment sources (Kamal et al., 2017). Other areas that the healthcare system has been spending on include administration, health insurance, and dental health services, among others. From the 1950s to around 1980, the amount spent on hospital care and doctors was increased when both Medicaid and Medicare were introduced. In addition, when many new drugs meant to treat different health conditions such as heart disease and cancer were introduced, the amount spent on drugs increased rapidly. In addition, there was a major increase in health insurance to cover the drugs from both the public and private sources (Kamal et al., 2017).
Healthcare facilities have been able to retain a high amount of healthcare expenditures throughout the years despite multiple major shocks in the healthcare sector. After 1970, the rate of hospitalization in acute care facilities began to decrease. In addition, the length of hospital stay also decreased in a significant way. However, hospitals still have revenues increasing as a result of intensive medical interventions. For example, despite a reduction in the number of days patients spend in hospitals, the cost per person reached $9,200 in 2009 (Kamal et al., 2017). This was a major increase from the 1997 figure, which as estimated at $6,600. An increase in outpatient services offered by hospitals also caused an increase in hospitals’ revenues. Services such as MRI, cancer treatment in the outpatient setting, and clinics for cardiovascular diseases, among others, were introduced hence earning more revenue for healthcare facilities. As a consequence of more services, outpatient services increased by approximately 3.8% annually. In addition, the number of physicians, specialization, and health insurance coverage increased, leading to more expenditure in the healthcare system. Besides the increase in the use of medical services, their intensity also increased as a result of factors such as surgery rates and laboratory testing. These factors contributed to increased healthcare expenditures.
Conclusion
In conclusion, healthcare financing has experienced major changes since 1950. Among these major changes are an increase in expenses, changes in healthcare financing sources, and uses of healthcare funds. The most significant changes have been observed in expenditure where the amount of money spent on healthcare has increased enormously. This increase can be attributed to different factors such as health insurance, such as Medicare and the cost of drugs, among others. The federal government has the largest share when it comes to financing the healthcare system. Out-of-pocket payments have significantly decreased. In addition, the number of private insurance firms has increased since 1950. Employment-based health insurance is also common, although its prevalence reduced, especially after Medicaid and Medicare were established. Since the 1950s, healthcare finances have mainly been used on drugs, doctors, and healthcare facilities. Hospitals, in particular, have been able to keep their share and witnessed a remarkable increase in the money they generate. The share for physicians has also increased, especially as a result of more doctors because of more medical services and specialization. Therefore, compared to the 1950s, healthcare financing today is very different and the fact that its expenditure has outweighed the rate of economic growth hence raising many concerns such as its sustainability.
References
Altman, S. and Schactman, D. (2012). Power, Politics, and Universal Health Care: The Inside Story of a Century Long Battle Amherst. New York: Prometheus Books.
Enthoven, A. C., & Fuchs, V. R. (2017, August 2). Employment-based health insurance: Past, present, and future. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.25.6.1538
Kamal, R., McDermott, D., & Fox, C. (2019, December 20). How has U.S. spending on healthcare changed over time? https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/
