The Rise In Health Care Spending And What To Do About It
Kenneth E. Thorpe
Health Aff. 2005;24(6):1436-1445. ©2005 Project HOPE
Abstract and Introduction
Reforms for slowing the growth in health care spending and increasing the value of care have
largely focused on insurance-based solutions. Consumer-driven health care represents the most
recent example of this approach. However, much of the growth in health care spending over the
past twenty years is linked to modifiable population risk factors such as obesity and stress. Rising
disease prevalence and new medical treatments account for nearly two-thirds of the rise in
spending. To be effective, reforms should focus on health promotion, public health interventions,
and the cost-effective use of medical care.
Over the past five years the cost of health insurance has risen 54 percent. This persistent rise
has recently been attributed to the low out-of-pocket costs paid by consumers. By not knowing
the full costs associated with health care, consumers demand more and "overuse" it (moral
hazard). The growth in spending has also been linked to the rising use of prescription drugs and
new medical innovations and treatments. Still others believe that the rise can be traced to the
lack of competition in the health care marketplace and have proposed new approaches for health
plans to compete on price and outcomes.
Economists thinking about rising health care spending note that there are only two approaches
for slowing its growth: reduce spending on high-cost medical care that produces no benefits, and
reduce spending on high-cost care that yields some health benefits butatevenhighercosts.Along
theselines,some have proposed that we need to "ration rationally" to slow spending growth.
Although this may be true, this approach ultimately involves some form of rationing and difficult
decisions concerning the introduction of new technologies. Proposals to increase patient cost
sharing under consumer-driven models are designed to place consumers in the position to make
these health care judgments for themselves.
With the diagnosis of the problem identified as low consumer cost sharing and rising discretionary
use of services, the policy solutions have focused on demand-side interventions. These
innovations are designed to reduce the discretionary use of health care thought to account for
most of the growth in spending. Consumer-driven approaches include the broader dissemination
of information to consumers about prices and quality coupled with products such as health
savings accounts (HSAs). The HSA concept is designed to reduce spending by making
consumers more conscious of their use of routine medical care. Consumer-driven health care has
dominated the recent cost containment debate.
However, nearly two-thirds of the rise in health care spending is linked to a rise in treated disease
prevalence (for example, diabetes) and innovations in medical treatment. Health behavior such
as overconsumption of food, lack of exercise, smoking, and stress accounts for approximately 40-
50 percent of morbidity and mortality. Thus, a reliance solely on the consumer-driven model is
not likely to solve the problem, since it would do little to address the key factors that underlie the
rise in health care spending. Indeed, missing from the list of solutions for slow-ing health
spending growth are public health and preventive interventions at the population level that target
the rise in treated disease prevalence. Moreover, given the important role that medical
innovations have assumed in expanding treatment, options for discouraging the diffusion of high-
cost/low-benefit technologies also need exploration. To date, U.S. cost containment policy has
focused too narrowly on demand-side interventions such as changing the design of insurance
benefits and increasing cost sharing.
This paper summarizes the factors responsible for the rise in health care spending during the
past twenty years. As the data show, most of this rise has been driven by a rise in treated disease
prevalence, fueled by an increase in population risk factors such as obesity and by innovations in
the treatment of chronic disease. The bulk of the paper then outlines a series of reforms that are
designed to address the factors responsible for the rise in spending.
What Accounts For The Rise In Health Care Spending?
The growth in real per capita health care spending is simply the growth in spending per treated
case times the number of medical conditions treated (treated disease prevalence). Elsewhere my
colleagues and I have apportioned the rise in spending over time into these two categories and
concluded that approximately 63 percent of the rise in real per capita spending is traced to a rise
in treated disease prevalence (Exhibit 1). This rise is caused by rising prevalence of disease in
the population, changing clinical thresholds for diagnosing and treating disease, and innovations
(new technology) in treatment. The discussion distinguishes among these sources, since some of
the rise in treated prevalence is likely desirable (primary prevention of hypertension, more
aggressive treatment of patients with the metabolic syndrome, lipid control, and treatment of
prediabetic patients), while other sources could be prevented, such as the rise in obesity.
21. J.O. Prochaska, C.C. DiClemente, and J.C. Norcross, "In Search of How People Change:
Application to Addictive Disorders," American Psychologist 47, no. 9 (1992): 1102-1114.
These stages of change are precontemplation, contemplation, preparation, action, and
maintenance. Success in changing behavior is related to a person's stage prior to
enrollment in a program. Thus, treating all people enrolling in a diet, exercise, or
smoking-cessation program equally is less effective than providing programs tailored to
these stages at enrollment.
22. R.J. Ozminkowski et al., "Long-Term Impact of Johnson and Johnson's Health and
Wellness Program on Health Care Utilization and Expenditures," Journal of Occupational
and Environmental Medicine 44, no. 1 (2002): 21-29.
23. S.G. Aldana, "Financial Impact of Health Promotion Programs: A Comprehensive Review
of the Litera-ture," American Journal of Health Promotion 15, no. 5 (2001): 296-320.
24. Tabulations of data from the 1998 National Health Insurance Survey (NHIS), Adult
Prevention Module. About 10 percent of these programs are viewed as comprehensive
(Michael P. O'Donnell, editor of the American Journal of Health Promotion, personal
communication, 10 June 2005). Comprehensive programs would include health
awareness, education, screening, and behavior-change modules that include smoking,
obesity, stress, fitness, nutrition, substance abuse, and mental health.
25. R.R. Miller et al., "Adherence to Heart-Healthy Behaviors in a Sample of the U.S.
Population," Preventing Chronic Disease, April 2005,
www.cdc.gov/pcd/issues/2005/apr/04_0115.htm (3 August 2005).
26. J.S. Holtrop et al., "Recruiting Health Plan Members Receiving Pharmacotherapy into
Smoking Cessation Counseling," American Journal of Managed Care 11, no. 8 (2005):
27. Institute of Medicine, Preventing Childhood Obesity: Health in the Balance (Washington:
National Academies Press, 2004), 55-58.
28. Ibid., 253. The current recommendation from the Department of Health and Human
Services is that chil-dren should have at least sixty minutes of moderate to vigorous
physical activity each day. Half their time is spent in school, generating the concept of
thirty minutes per day at school.
29. Ibid., 254.
30. Ibid., 240.
31. P.K. Whelton et al., "Clinical Outcomes in Antihypertensive Treatment of Type 2
Diabetes, Impaired Fasting Glucose Concentration, and Normoglycemia," Archives of
Internal Medicine 165, no. 12 (2005): 1401-1409.
32. A similar proposal has been advanced in M.E. Porter and E.O. Teisberg, "Redefining
Competition in Health Care," Harvard Business Review 82, no. 6 (2004): 65-76.
Much of the work discussed in this paper is the product of the author's previous work with David
Howard, Curtis Florence, and Peter Joski. The author also acknowledges the helpful of
comments of three anonymous reviewers.
Ken Thorpe ( email@example.com ) is the Robert W. Woodruff Professor and Chair in the
Department of Health Policy and Management, Rollins School of Public Health, at Emory
University in Atlanta, Georgia.
Disclosure: Much of the work discussed in this paper is the product of the author's previous work
with David Howard, Curtis Florence, and Peter Joski.