Three Reasons for the Rising Costs of Health Care

On November 2nd I said I would summarize a report titled The Challenge of Rising Health Care Costs — A View from the Congressional Budget Office written by Peter R. Orszag, Ph.D., and Philip Ellis, Ph.D. Dr. Orszag is the director of the Congressional Budget Office (CBO). Dr. Ellis is a senior analyst at the CBO. The CBO is a nonpartisan agency that provides budgetary and economic analyses to Congress.

The report describes three reasons for the rising costs of health care.

1. The bulk of the spending for health care is from the development and diffusion of new medical technologies and therapies.

2. The fee-for-service (rather than managed care) reimbursements to health care providers creates an incentive to provide additional or more expensive services.

3. The declining out-of-pocket costs paid by recipients for services. Consumers ask for more when they pay less.

A fair question here is what does rising health care costs have to do with the desire for universal health care? The answer is simple. If we want to have equal health care for all, we need to be sure we don’t break the bank. Next let’s talk about how to control costs.