Global Economy
Rising Health Costs: US health care costs in 2009 rose to 17.6% of GDP; Spending rising in OECD countries faster than economic growth
By Michael Hennigan, Founder and Editor of Finfacts
Jan 10, 2011 - 5:37 AM

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Source: VHI Healthcare, Annual Report 2009

Rising Health Costs: Health care spending in the United States grew 4.0% in 2009, to $2.5trn, $8,086 per person or 17.6% of the nation's Gross Domestic Product (GDP). The level was up from 16.6% in 2008 - - the slowest rate of growth in the 50-year history of the National Health Expenditure Accounts (NHEA), due in great part to the economic recession - - according to a report published last week by the NHEA.

The Organisation for Economic Cooperation and Development (OECD0 said last June that in its mainly developed member countries, total spending on health care was rising faster than economic growth, pushing the average ratio of health spending to GDP from 7.8% in 2000 to 9.0% in 2008. Factors pushing health spending up - -  technological change, population expectations and population ageing - - will continue to drive cost higher in the future.

In some countries the recent economic downturn, with GDP falling and healthcare costs rising, led to a sharp increase in the ratio of  health spending to GDP. In Ireland, the percentage of GDP devoted to health increased from 7.5% in 2007 to 8.7% in 2008. In Spain, it rose from 8.4% to 9.0%.

Governments of most OECD countries shoulder the lion’s share of healthcare costs. The share of government expenditure devoted to health increased in most countries, rising from an average of 12% in 1990 to an all-time high of 16% in 2008.

New medical technologies are improving diagnosis and treatment but they also increase health spending. OECD Health Data 2010 shows that there has been rapid growth in the supply and use of computed tomography (CT) scanners and magnetic resonance imaging (MRI) units used for diagnostic purposes. MRI units per capita more than doubled on average across OECD countries between 2000 and 2008, reaching 13 machines per million population in 2008, up from 6 in 2000. The number of CT scanners rose to 24 per million population, up from 19 in 2000. The number of MRI units per capita is much greater in Japan, the United States, Italy and Greece than in other countries. These countries, along with Australia and Korea, also have more CT scanners.

MRI and CT scanners are expensive to buy and to operate. There are big differences in their use per capita - far more in the United States than in Canada, France or the Netherlands. The rapid growth in these diagnostic procedures over the past decade in the United States has raised concerns that some imaging may not be useful. To reduce unnecessary procedures and cut costs, many OECD countries are trying to promote rational use of costly medical technologies.

In the US, President Obama's health reform program remains the subject of controversy.

Republican leaders have put the cost of the program “when fully implemented” at $2.6tn and said it would “add $701bn to the deficit in its first 10 years.”

The nonpartisan Congressional Budget Office (CBO) says that the Republican plan to repeal the Obama program would add $230bn to federal budget deficits over the next decade.

Last week the Irish State health insurer VHI Healthcare, hiked annual premiums by up to 45%.

Vhi Healthcare lost almost 120,000 customers in 2009 and it lost lost a further 48,000 subscribers last year.  The claims ratio, i.e. payment for medical care as a percentage of earned premium, came to 98.7%, which it said is significantly higher than competitors which is below 80% and is 61% for Aviva Healthcare.

VHI’s average healthcare spend per customer was €900 which is twice the level of its market competitors due to the age profile and health status of its customers.

Health spending is a bottomless pit and a difficult area for politicians to reform given the demands of ageing populations.

Peter Singer, a professor of bioethics at Princeton University, wrote in The New York Times Magazine on the sensitive issue of rationing that: "The death of a teenager is a greater tragedy than the death of an 85-year-old, and this should be reflected in our priorities. We can accommodate that difference by calculating the number of life-years saved, rather than simply the number of lives saved."

On a lighter note, he said: "Remember the joke about the man who asks a woman if she would have sex with him for a million dollars? She reflects for a few moments and then answers that she would. 'So,' he says, 'would you have sex with me for $50?' Indignantly, she exclaims, 'What kind of a woman do you think I am?' He replies: 'We’ve already established that. Now we’re just haggling about the price.' The man’s response implies that if a woman will sell herself at any price, she is a prostitute. The way we regard rationing in health care seems to rest on a similar assumption, that it’s immoral to apply monetary considerations to saving lives - - but is that stance tenable?"

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