Drivers of health-care costs

Health care has grown to be one of the largest parts of our economy, and for several decades policymakers have had the goal of slowing the growth of health-care costs. But those costs continue to rise. NC State University economist Mike Walden explains why.

“Well, if we look at the data for last year we see that health-care costs were up 5.5 percent. In fact, that was the largest increase in five years. That’s the bad news. The good news is, however, that increase was much below the 30-year average from 1978 to 2008 when health-care costs increased at an a annual rate of 9 percent. But still health-care costs are going up, and the question is why.

“And I think there are three important factors:

  • First and foremost, aging of the population. We are an aging society. The percentage of people over age 65 is going to go from around 13 percent today to 21 percent in the next few decades. Older people use more health care, so that’s going to be a continued driver.
  • Recently we’ve had an improving economy. People are better off economically, and studies show that when people have more money, more disposable income, they do use more health care. So that’s been one of the recent drivers.
  • And then, last, health insurance. We have had a program, the Affordable Care Act, as well as other programs that have expanded the amount of health insurance that people have. We have the lowest percentage of people now in the country without health insurance that we’ve had in decades. And when people have health insurance, again, studies show that people use the health-care system more.

“I think if we look ahead and look at can we control health-care costs, I think the biggest factor that can help us in that regard is technology.”