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The increasing expenditures, prices, and costs of health care have become a major issue facing the Congress for a variety of very practical reasons. The increases have had a large impact on:
public expenditures by Federal, State, and local governments;
industry expenditures for employee-benefit plans; and
ultimately, consumer expenditures, through direct payments
In addition, the increases remain an issue because it is unclear exactly what the expenditures are buying in terms of the standard of health in the United States.
A. Public Expenditures
The portion of national health expenditures financed from public sources (Federal, State, and local governments) has grown much more rapidly than expenditures from private sources. The public share increased from 13.3 percent of total spending in FY 1929 to approximately 25 percent in FY 1950, and remained about 25 percent of total spending through FY 1965. Since FY 1965, the public share has steadily increased, so that in FY 1976, public spending accounted for 42 percent of total national health expenditures. The following table summarizes the growth in public expenditures for health care.
PUBLIC SHARE OF NATIONAL HEALTH EXPENDITURES, SELECTED
Health Expenditures, Fiscal Year 1976." Social Security Bulletin, Volume 40, No. 4, April, 1977.
The increasing public expenditures for health care are reflected in the increasing portion of the Federal budget allocated to health programs over the past decade. The health function of the Federal budget, which includes most major Federal health programs except for Defense Department and Veterans' Administration medical care programs, has grown from 2 percent of total Federal outlays in FY 1966 to 9.7 percent of President Carter's budget proposal for FY 1978. The table which follows traces this growth in Federal health spending.
TOTAL FEDERAL OUTLAYS AND FEDERAL HEALTH OUTLAYS,
Source: Office of Management and Budget. Fiscal Year 1978 Budget Revisions, February, 1977.
The major components of public spending for health care are the Medicare and Medicaid programs. In FY 1976, these two programs accounted for a total of $33.1 billion, or 62 percent of public expenditures for health care.
These rising public expenditures focus increasing attention on health care as policy makers at Federal, State, and local levels must decide how to allocate the limited budgetary resources available to them. Constant trade-offs must be made between health care, social welfare, defense, spending for other governmental programs, and tax reduction. The increased spending for health care reduces the funds available for these other purposes. Attention centers on the cost of health care because the price and cost increases for health care have exceeded those for the general economy, and because cost constraints represent a method of limiting spending without limiting coverage and benefit levels under programs such as Medicare and Medicaid.
Expenditures for health care have been a major source of increases in spending under employee-benefit plans. Employer-employee contributions for health benefits plans reached $23.1 billion in 1974, or 3.11 percent of all wages and salaries. In contrast, health benefits contributions constituted 2.15 percent of wages and salaries in 1965, and less than one percent in the early 1950's. The following table portrays the growth in contributions under employee benefits plans for health benefits as a percentage of all wages and salaries since 1950.
EMPLOYER-EMPLOYEE CONTRIBUTIONS FOR HEALTH BENEFITS
Skolnik, Alfred M. "Twenty-Five Years of Employee-Benefit Plans."
These contributions finance health benefits protection for employees and their families. A total of 58 million workers were covered for hospitalization, 56 million for surgical benefits, 55 million for medical benefits, and 28 million for major medical benefits.
The growth in contributions has far surpassed the growth in the number of workers covered under health benefits plans, especially in recent years. This reflects both increases in the scope of coverage and increases in the cost of health care. For example, while the number of workers covered for hospitalization increased at an average annual rate of 1.6 percent from 1970-1974, the contributions for hospitalization increased at a rate of 10.9 percent per year. The following table compares increases in covered employees with increases in contributions for health benefits protection.
Skolnik, Alfred M.
"Twenty-Five Years of Employee-Benefit Plans." Social Security Bulletin, Vol. 39, No. 9, September, 1976.
These increasing contributions for health benefits protection have focused the attention of employer and employee groups on health care costs. The President's Council on Wage and Price Stability summarized testimony from numerous companies and unions in their recent report, "The Complex Puzzle of Rising Health Care Costs: Can the Private Sector Fit it Together?" Eastern Airlines reported an increase in health insurance costs from $430 per employee in 1973 to $850 per employee in 1976, a period of only minor changes in the benefit package. Bethlehem Steel reported that health benefits costs increased from $371 per employee in 1970 to $1,069 in 1976. General Motors reported total health insurance costs of $825 million in 1976. The size of General Motors' expenditure was highlighted as it was pointed out that health insurance was a larger component of the cost of building an automobile than steel.
Unions are also becoming increasingly concerned at the rising expenditures. The annual increases for health benefits protection force consideration of benefit reductions in some cases, and reduce the amount of money available for wage increases when unions negotiate for their members.
In addition to the direct impact on employers and employees, these increasing health care expenditures fuel inflation in the rest of the economy as the costs of the products produced must be increased to account for the higher expenditures under employee-benefit plans.
C. Consumer Expenditures
All of the spending for health care eventually comes from individuals, whether it is in the form of taxes, insurance premiums, or direct expenditures on health care. The following table displays national health expenditures per capita through these various sources in FY 1976.
*Includes philanthropic spending and industrial in-plant health services.
Source: Gibson, Robert M., and Mueller, Marjorie Smith. "National Health Expenditures, Fiscal Year 1976." Social Security Bulletin, Vol. 40, No. 4, April, 1977.
An increasing portion of personal income in the United States is being spent on personal health care services. As the following table shows, in FY 1976 approximately 9.2 percent of personal income was spent on personal health care service, compared with 6.5 percent in FY 1965.