Financing Health Care Costs - Who Pays?

Article excerpt

Throughout the 1980s, health care costs grew at astounding rates. Despite economic predictions of an imminent recession, health care costs in the 1990s are predicted to continue to increase at rates that exceed those of the previous decade. Employer-provided, private health insurance coverage remains the major vehicle that opens the door of access to these costly services. While many suggest that in the 1990s the United States will be ready for national health insurance (employers, health practitioners, and policy makers have each developed proposals), there are major efforts to preserve the private sector financing role of employers.



National health care expenditures in 1988 totaled $539.9 billion or 11.1% of the Gross National Product (GNP). Since 1965, the annual growth rate of national health care expenditures has exceeded that of the GNP. Changes in the business cycle are only moderately reflected in the growth rates of health care expenditures. (See Figure 1 on page 13). Thus, it is not surprising to find that health care expenditures have continuously consumed an increasing share of the nation's resources: 5.9% of GNP in 1965; 8.3% of GNP in 1975; and 10.5% of GNP in 1985.

Who has financed these expenditures, particularly personal health care? In 1960, patients directly financed the majority of personal health-care expenditures via out-of-pocket payments, representing about 56% of expenditures. By 1988, patients'out-of-pocket shares had fallen to 23.7%. Private health insurers (predominantly employer-sponsored) have increased their shares of the expenditure burden from 21% in 1960 to 32.4% in 1988.

The federal government and state and local governments have adjusted their respective shares from 8.9% to 29.9% and 12.5% to 10.6%. Over the period, private health insurers have maintained a constant share 35%) of expenditures on hospital services, increased their share of expenditures on physician services (32% to 47.6%), provided negligible financing of nursing home care, and increased their share of expenditures on dental, home health, vision, and drug items (8% to 19.2%).

By the year 2000, per capita health care expenditures are predicted to increase to $5,515, a 443% increase above expenditures in 1980. Employers and employees will face a 529% increase in dollars allocated to health care, an increase from $66 billion in 1980 to $412 billion in 2000. States will face a 480% increase in Medicaid expenditures during this same period.

In Tennessee, per capita health expenditures in 1980 were $952. By 1990, these expenditures were predicted to rise to $2,262. By the end of the century, expenditures will rise to $5,145, or an amount slightly lower than the national average. These predicted expenditures for the year 2000 reflect a 441% increase between 1980 and 2000.



The impending crisis of rising and exorbitant health care costs has forced employers to face a no-win dilemma. On the one hand, workers are unwilling to relinquish their lucrative fringe benefit: health insurance coverage. Additionally, employers know that adequate access to medical services produces healthy, happy, and productive workers. On the other hand, employers compare their rising costs of health insurance coverage to costs of international competitors and view rising health costs as the achilles heal.

According to recent data analysis by the Department of Labor's Bureau of Labor Statistics and the Bureau of National Affairs, disputes over health insurance were responsible for 60% of worker strikes and 78% of work stoppages in 1989.'Me established tradition dictates that health insurance coverage is a viable substitute for increased wages at labor-management bargaining tables.

Recently, employers have reduced their share of the burden of rising health care costs by increasing the share of costs borne by the employee (increased premium payments, deductibles, and co-insurance). …