Health Care Expenditure in the United States

Problem Narrative:

Health care expenditure has been growing rapidly in the last few decades. This is due to the rise in health care cost. The government determines benefit levels by regulating policies. New technology, the change in diet and life style are all contributing to the rise in health care cost. The increase in population and the aging of already existing population are also contributing to the increase in health care cost, but all that is part of the life cycle. The government has no control over these demographics; therefore, it is important to understand what role does the government have that is contributing to this wild increase in health care expenditure. 

Behavior Over Time:

According to CMS (Centers for Medicare and Medicaid Services), health care expenditures have risen from 27 billion in 1960 to almost 2.6 trillion in 2010.¹

CMS also projected the health care expenditure to reach 4.6 trillion by 2020. ²

Relevance of a Systems Perspective:

A system approach is a good tool to be used in addressing this problem, because the rise in health care expenditure is an issue that has been growing rapidly over the last few decades.  Also, the health care expenditure issue has multiple actors that impact the system such as:  

• The government: regulates policies and controls expenditure.  

• The health care providers: provide services to people, bill the government and health insurance companies.  

• The health insurance companies: provide coverage to people, collect premiums, and pay providers. 

• Individuals: receive health care services, pay taxes, and health insurance premiums.

Additionally, there are factors involved in this system, such as policies, provider charges, health insurance premiums, and government benefits that are affecting each other in different feedback loops. 

Study Objective and Questions to be Addressed: 

The objective of this study is to develop a model that helps in understanding the dynamics of multiple feedback processes and how are they impacting the rise in health care expenditures. We also anticipate addressing some questions such as:  Why is health care expenditure growing rapidly? What policies were adopted that might have given rise to the problem? What can be done in the future to have more control over the health care expenditure or bring it to a reasonable growth?

Dynamic Hypothesis:

The cost of health care service has been rising, and this is driving the health care expenditure to rise as well.

Intended Consequences:

When the health care expenditure rises, the government works on passing new policies and regulations to cut the cost, in an effort to balance the increase in the health care expenditure. The loop below shows the dynamics of this mental model.

Unintended Consequences and Other Dynamics:

Now that the cost is cut, health care providers start to find other ways to make up for the money that the government is no longer paying, so they raise costs of service and these raises are billed to insurance companies to make up for it. The insurance companies will then also have to make up for these increases in bills, so they pass it down to their customers, by raising their premiums. When the premiums go up, less people will be able to afford paying them, therefore, they look for alternatives. One alternative is not having health insurance. So what happens when they get sick? They go to the E.R (Emergency Room) each time they get sick. Since the E.R visit has a high cost, health care providers will have to make up for it, so they pass them to health insurance companies again, and that feedback loop keeps reinforcing the cost to go even higher. This is shown in the R loop.

Another alternative that people find, if they qualify, is to utilize government subsidized health benefits, such as Medicaid. That increase in the number of people on benefits will translate into more expenditure on behalf of the government, and will drive more policies to lower the cost, going down the same path that reinforces even more expenditure in this loop. This is represented in the R2 loop.

Loop Dominance:

Looking at the CLD above, we can see that the first mental model, or B1 loop, might dominate in the beginning, where new policies might take the health care cost down. While the other two loops, R1 and R2, would dominate later on because they build over time and work their way on gradually taking over the system.

Delays:

I think there would be a delay between the new policies and regulations and health care cost, since it takes a long time for the government to put them in place.

Another delay would be in the rise in healthcare cost that gives rise to private insurance bill, because it takes the health care providers time to adjust the prices and pass new increases to insurance companies.

There would also be a delay between private insurance bill increase and the increase in premium, because it would take time to adjust the new costs and raise premiums accordingly. 

Resources:

1.   https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/tables.pd
2.   https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/proj2010.pdf