Excessive inflation in health care costs not only burdens the economy but is a major factor in increasing the number of the uninsured.
After several years of low growth, health care costs are now rising very rapidly. Health insurance premiums increased 10.9 percent in 2001, 12.9% in 2002, 13.9% in 2003, 11.2% in 2004, and 9.2% in 2005. The cumulative increase over the five years was 73%, while the cumulative increase in the CPI was only 13.6%.
National health expenditures are projected to reach $3.6 trillion in 2014, growing at an average annual rate of 7.1 percent from 2003-2014. As a share of GDP, health spending is projected to reach 18.7 percent by 2014.
Claims processing and other administrative functions cost the health care system $600 billion per year money that could be better spent on patient care. America's fragmented health financing system is a major driver of these high administrative costs. In Canada, where health insurance is publicly financed and providers bill the government for all services rather than having to deal with a multiplicity of insurance companies with different rules and payment formulas, administrative costs are only about half as high as in the United States (16.7% of total health costs in Canada vs. 31% in the United States).
The administrative expense needed by the government to run the Medicare program accounts for only 3% of Medicare spending. By contrast, the amount of every premium dollar retained by private insurance companies for marketing, administration and profit is 14%.
Healthcare is one of the least efficient industries in America. Settling a single transaction in health care can cost as much as $12 to $25, whereas banks have cut their costs to less than a penny per transaction by using modern information technology.
According to a study conducted by the RAND Corporation, by utilizing advanced information technology and adopting electronic medical records for every patient, America could save over $160 billion a year by reducing duplicative care, lowering health care administrative costs, and improving quality.