The latest work-life information at IU
No. 54
August 2011

University Human Resources
Informed Employee

U.S. Health Care Costs


Rapid cost growth, coupled with an overall economic slowdown and rising federal deficit, is placing great strains on the systems used to finance health care.

Health care costs have been rising for several years. Expenditures in the United States surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990. Stemming this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs.

In 2008, U.S. health care spending was about $7,681 per resident and accounted for 16.2% of the nation's Gross Domestic Product (GDP); this is among the highest of all industrialized countries. There is general agreement that health costs are likely to continue to rise in the foreseeable future. Many analysts have cited controlling health care costs as a key tenet for broader economic stability and growth, and President Obama has made cost control a focus of health reform efforts under way.

The recent rapid cost growth, coupled with an overall economic slowdown and rising federal deficit, is placing great strains on the systems used to finance health care, including employer-sponsored health insurance coverage and public insurance programs such as Medicare and Medicaid. Since 1999, family premiums for employer-sponsored health coverage have increased by 131 percent, placing increasing cost burdens on employers and workers. With workers' wages growing at a much slower pace than health care costs, many face difficulty in affording out-of-pocket spending.

Programs such as Medicare and Medicaid account for a significant share of spending, but they have increased at a slower rate than private insurance. Medicare per capita spending has grown at a slightly lower rate, on average, than private health insurance spending, at about 6.8 vs. 7.1% annually respectively between 1998 and 2008. Medicaid expenditures, similarly, have grown at slower rate than private spending, though enrollment in the program has increased during the current economic recession.

How is the U.S. health care dollar spent?

As shown in the figure below, hospital care and physician/clinical services combined account for approximately half of the nation's health expenditures.

National Health Expenditures, 2008

What is driving health care costs?

Controlling health care expenditures requires a solid understanding of the factors that are driving the growth in spending. Some of the major factors to consider are:

  • Technology and Prescription drugs – For several years, spending on new medical technology and prescription drugs has been cited as a leading contributor to the increase in overall health spending; however, in recent years, the rate of spending on prescription drugs has decelerated. Some analysts believe these products generate consumer demand for more intense, costly services even if they are not necessarily cost effective.
  • Chronic disease – The nature of health care in the U.S. has changed dramatically over the past century with longer life spans and greater prevalence of chronic illnesses. This has placed tremendous demands on the health care system, particularly an increased need for treatment of ongoing illnesses and long-term care services such as nursing homes. It is estimated that health care costs for chronic disease treatment account for over 75% of national health expenditures.
  • Aging of the population – Health expenses rise with age and as the baby boomers are now in their middle years, some say that caring for this growing population has raised costs. This trend will continue as the baby boomers will begin qualifying for Medicare in 2011 and many of the costs are shifted to the public sector.

The Kaiser Family Foundation, U.S. Health Care Costs, Background Brief, March 2010, available at

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For individuals covered by an IU-sponsored medical plan

The Nurse Line can be called for any non-emergency health concerns such as those listed below. The 24-Hour Nurse Line does not replace a doctor's care and is not designed to address 911 situations.

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Tobacco Use and Health
Smoking and Cancer

Smoking harms nearly every organ of the body. Smoking causes many diseases such as cancer and reduces the health of smokers in general. While it is true that more people die from lung cancer than any other type of cancer, smoking also causes the following cancers which account for a large number of deaths.

Source: Centers for Disease Control and Prevention




Page updated: 22 August 2011
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