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INTRODUCTION TO THE PROBLEM

As noted in Chapter 5, the United States has struggled with the problem of rising healthcare costs since (at least) the late 1920s. Indeed, the “cost” angle has dominated the iron triangle for attention in most decades since. That means we have an intractable problem—one going on for 90+ years. Of the 3 angles in the iron triangle or the triple aim, the cost angle has been particularly vexing. That is why this volume devotes an entire chapter to the topic.

So, what is “the problem,” stated succinctly? The problem is manifold. First, rising costs are driven by lots of factors that can be classified according to supply, demand, price, and volume. Second, there have also been lots of efforts to control rising costs, whether via regulation, market-based remedies, changing how providers are paid, changing how providers are organized, reducing variations in care, reducing low-value and unnecessary care (eg, the downward-sloping part of the curve in Figure 2-4), using technological advances, promoting wellness and prevention, focusing on the chronically ill, and (more recently) using “big tech” to promote greater consumerism. This chapter examines these topics and draws some conclusions about what we can realistically expect to accomplish in controlling rising healthcare costs.

EXAMINING THE TRENDS

Figure 6-1 shows the increase in national health expenditures (NHE) per capita in the United States between 1960 and 2019. The rate of increase accelerated between 1960 and 1970 (1.4x), accelerated even faster during 1970 to 1980 (2.1x) and 1980 to 1990 (1.6x), decelerated between 1990 and 2000 (0.7x) and 2000 and 2010 (0.7x), and then slowed down even further from 2010 to 2019 (0.4x). Figure 6-2 shows cost escalation data on an annualized basis.

Figure 6-1

National Health Expenditures per Capita in the United States from 1960 to 2019 (in US Dollars). (Source: Centers for Medicaid and Medicare Services.)

Figure 6-2

Average Annual Real Growth Rate in National Health Expenditures Per Capita. (Source: Centers for Medicaid and Medicare Services, https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2019.01451.)

There are several reasons why we need to understand this. First, rising healthcare costs now account for a growing share of the US government’s federal budget due to spending on “entitlements” (eg, Medicare, Medicaid, Social Security). As noted in Chapter 2 (Figure 2-7), such entitlement spending begins to crowd out other (discretionary or nonhealthcare) spending. This is reflected in Figure 6-3. The majority of the federal government’s budget of $4.1 trillion (2018) is devoted to Social Security ($982 billion, or 24%), Medicare/Medicaid ($971 billion, or 23.7%), and other mandatory spending programs ($570 billion, or 13.9%). Over time, federal spending on major health programs is projected to outstrip Social Security payments (Figure ...

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