Trends in Total US Healthcare Expenditures
Trends in Personal Healthcare Expenditures
Trends in Healthcare Expenditures by Condition
The total annual costs of healthcare paid by each individual is the sum of the healthcare premiums he pays and the out-of-pocket costs he incurs:
Total Cost of Healthcare = Insurance Premiums + Out-of-pocket Costs
Roughly speaking, the annual insurance premium an individual pays is the average of the total annual costs paid by his insurance company for the healthcare costs incurred by all individuals in his (age) group. What this means is that if the healthcare costs of one individual rise, then that individual does not bear the full burden of the costs increase, but rather, the burden is shared by all members of the group. This is the very nature of risk-pooling, and it works fine when all the members in the group face the same risks.
Out-of-pocket costs for healthcare depend on the type of coverage an individual has, plus the amount of healthcare individuals use.
Moving on, the amount of healthcare an individual will use/need during the year depends on several factors:
- Genes: People will end up using more healthcare services to the extent that they have “bad” genes.
- Luck: People will end up using more healthcare services to the extent that they have bad luck or are otherwise accident prone.
- Lifestyle: People will end up using more healthcare services to the extent that they have an unhealthy diet, don’t exercise, smoke, don’t take safety precautions (e.g., wear seatbelts), or otherwise lead more risky lifestyles.
- Compliance: People will end up using more healthcare services to the extent that they don’t comply with their doctors’ recommendations (e.g., take medication, lose weight, stop smoking, etc.)
Obviously, people can’t control whether they have bad genes or bad luck. However, they can control the type of lifestyle they live and whether they comply with their doctors’ recommendations.
This begs the following question: To what extent are healthcare costs attributable to factors that people cannot control (bad genes and bad luck), as opposed to factors that they can control (lifestyle and compliance)?
Most people would probably agree to have society (government) subsidize healthcare costs associated with factors people cannot control. However, to the extent that people choose to not control those factors over which they do have power, then to what extent should society be responsible for subsidizing those people’s higher healthcare costs?
Clearly, the issue becomes more important as the costs of healthcare have increased so dramatically over the years.