Challenges of Rising Health Care Cost Supply and Demand Drivers

Challengesof Rising Health Care Cost: Supply and Demand Drivers

Challengesof Rising Health Care Cost: Supply and Demand Drivers

Therecent trend of rising health care costs has become an issue amongmillions of residents in the United States as well as employers,legislators, and providers of health care services. The rising costhas been a subject of different interpretations among policy makers,most blaming the rise on the ever-increasing premiums. Even so,premiums are bound to increase in cases where the health care costsare going up, and so this cannot be a satisfying reason (Muir et al.,2013). Recent studies indicate that several factors combine invarious proportions to push up the cost of health care. The factorsinclude (but not limited to) greater demand for services,underfunding of public programs (which leads to shifting of costs),new technologies among others. Various challenges come with therising health care costs. This paper will explore those challenges.


Accordingto the Actuarial Perspectives on Cost and Quality (2015), an articleby the American Academy of Actuaries, the rising health care cost canbe attributed to increased enrollment in programs such as Medicare.The cost per individual enrollment in the program has been increasinggradually in the recent years. The retirement of the baby boomergeneration and the growing aging population explains the risingenrollment in the program. The limited financing to the program bythe federal government has made it necessary for some of the costs ofhealth care that would have been covered by the Medicare program tobe pushed to individuals enrolled in a form of co-payments. This isalso true for other medical service providers. Additionally, theincreasing elderly population and all the people, in general, haveput pressure on the limited health care resources such as doctors andnurses. To cater for the shortage of personnel, the cost is pushed tothe American population.

&quotTheRise in Health Care Spending and What to Do about It&quot by KennethThorpe (2014) attributes the rising costs of new medicalinterventions in the form of technology. New technology hasrevolutionized health care. Technology has made it possible for somechronic conditions such as heart disease to be managed withoutprolonged hospital stays. Again, there are limited risks associatedwith the use of technology. Consequently, the bid to increase theiravailability to patients as a response to growing demand for them hasled to increased health care costs. Thorpe also cites limitedcompetition in the market offering health care provision services asa contributing factor to the runaway costs of health care. This hasbrought about negative implications on the quality of health care.

&quotClarifyingCosts: Can Increased Price Transparency Reduce Healthcare Spending?&quotby Muir et al. (2013) explains that as of 2012, the federalgovernment health care expenditure accounted for 18 per cent of theGDP. Further, the costs were projected to increase steadily in thecoming years. American employers and businesses are in a dilemmagiven the lack of affordable insurance options to cover theiremployees. Muir et al. (2013) conjure that lack of price transparencyhas created the opportunity for health care service providers toinclude hidden costs and proposes that there is a need for pricetransparency at both the consumer level and the insurer-providerlevel to contain the issue of costs. The rise in disease prevalencerates is also a reason for the rising cost.


Lowliving standard is one of the major challenges brought about by therise in health care cost. The level of spending towards healthcarehas gone up, and this only means that a huge proportion of people`sincome covers health programs. Employers have also reacted byholding down wages of their employees because they are incurring manycosts to provide insurance covers for them. A large proportion ofhealth care costs are now on the employees (Norlan &amp Hanna,2015). This has affected the American standard of living and willcontinue until the underlying issue is resolved.

Jobcreation has also been affected negatively with many employersviewing the spending on costs related to healthcare cover for theiremployees as being unsustainable in the end. The cost of labor hasgone up making companies consider cost reductions by decreasing thenumber of working hours and even downsizing the number of theiremployees (Thorpe, 2014). Even though the rise in health care costsis not singly responsible for this, it remains one of the majorcontributors to decreased levels of employment in the United States.

Sincepublic health care is financed by dollar taxes, the rising costs haveresulted in the consequent increase in taxes. For high income earningindividuals, the marginal tax rates are projected to go as high as 40percent by the year 2030. The increased taxes, as well as spendingtowards healthcare, will also result in slower GDP growth rates.Spending towards health care is growing at an annual rate of 2percent and this is unsustainable to the economy of the country(Norlan &amp Hanna, 2015).


Tothis end, there is a need to address the issue of the rising costs ofhealth care to manage the challenges associated with it. The issuehas brought about challenges such as decreased employment, lowstandards of living and increased taxes leading to slower economicgrowth. The rise in costs has been attributed to factors such asincreased enrollment especially by the baby boomer generation intopublic funded programs such as Medicare. The demand has outstretchedavailable resources necessitating the shift of some costs to theindividuals enrolled in such programs. Limited competition in themarket by those providing health care service is also a factor. Alongwith several other factors, there is growing need for them to beaddressed.


Norlan,D. &amp Hanna, C. (2015). Actuarial Perspectives on Cost andQuality. AmericanAcademy of Actuaries,3(5),9-22.

Muir,M., Alessi, S., &amp King, J. (2013). Clarifying Costs: CanIncreased Price Transparency Reduce Healthcare Spending? Scienceand Health Policy,4(2),12-32.

Thorpe,K. (2014). The Rise in Health Care Spending and What to Do About It.HealthAffairs,(21), 11.