The Burden of Health Care Costs: Business, Households, and Governments

By Levit, Katharine R.; Cowan, Cathy A. | Health Care Financing Review, Winter 1990 | Go to article overview

The Burden of Health Care Costs: Business, Households, and Governments


Levit, Katharine R., Cowan, Cathy A., Health Care Financing Review


The burden of health care costs: Business, households, and governments

Introduction

In 1989, spending for health care rose to $604.1 billion, up 11.1 percent from the prior year. National health expenditures (NHE) captured almost twice the proportion of national output in 1989 as it did in 1965, growing from 5.9 percent of the gross national product in 1965 to 11.6 percent in 1989.

In order to understand more about the payers of health care and the pressures they face, the traditional source-fo-funds (program) scheme of presenting NHE (Lazenby and Letsch, 1990) has been recast into payer categories. This payer classification fills policy needs by recognizing the role that business pays in financing health care and establishes a framework for understanding economic incentives of health care payers. Four of the separately identifiable payer categories under the new scheme include businesses, households, and Federal and State-and-local governments. Nonpatient revenues, and fifth payer category, is exactly equivalent to the traditional payer category of nonpatient revenues presented in the National Health Accounts (NHA).(1) Since this category is identical with the NHA category, it will not be discussed in detail in this article.

One of the most important aspects of this rearrangement of the NHA is the identification of the expenditures for which businesses are responsible. Business sponsors 89 percent of privately-financed insurance policies through employer-sponsored private health insurance (Health Insurance Association of America, 1989). Health insurance is a key part of compensation packages that workers assess when choosing an employer. As such, businesses have a difficult choice when confronted with rising health care costs: Good insurance packages are expensive, but are needed to compete successfully for good employees. To finance these increases, employers can cut their profit, raise product prices, or offer smaller wage increases. Another option is to offer less rich packages or drop health insurance benefits altogether, and risk losing workers.

In recent years, some businesses have faced annual premiums increases of 20 and 30 percent. Employers have re-examined policies, attempting to reduce their cost increases by raising deductibles and shifting more of the premium cost to employees. Many companies have moved into managed care programs, hoping that gatekeeper approaches would stem excess utilization.

Companies have also been grappling with problems of the rising number of retirees who have been promised health care benefits. These benefits have been mainly funded on a pay-as-you-go basis from current resources. The enormity of the future burden this will place on business is only beginning to be realized.

Business output drives economic growth. Any restructuring of the health care system to address the needs to the uninsured and to contain the rapid growth in health care costs must be grounded in a firm understanding of the effects that these changes will have on business and on their ability to grow and compete nationally and internationally.

Data presented in this article track expenditures made by these alternative payer categories from 1965 through 1989. A special emphasis is placed on business health care spending, analyzing the changes which business have been attempting to employ in their provision of health care insurance benefits for their workers. In addition, the burden of health care spending, measured as a portion of payers' ability to finance this care, is assessed.

Payer structure

The basis of aggregation under the payer classification presented here is health services and supplies (HSS). HSS covers the delivery of all health services and the purchase of medical products, including prescription drugs and vision products, in retail outlets. It also includes government public health expenditures, the administrative costs of public programs, and the net cost of private health insurance. …

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