AMERICANS ARE NOW spending almost one out of every 10 dollars on health care. Perhaps that's not too much to spend for the benefits of modern medicine. A clear cause for concern, however, is the claim of the health system for an ever increasing share of the nation's resources--it seems never to end.
The Department of Health and Human Resources reported last week that health care expenses grew at a record rate of 15.2 percent in 1980. This year expenditures are likely to top that record, adding further to budgetary and inflationary pressures.
Many factors contribute to the escalation of medical costs. The prices of things that the medical system buys--particularly labor costs--have risen rapidly. People are living longer, and, as they do, they need more medical care. With higher incomes and better insurance coverage, people generally are seeking more and better medical services. And with major advances in diagnosis and treatment technology, it is now possible to treat previously hopeless cases--but at enormous cost.
These trends aren't new, but some of them seem to have accelerated in the past two years. In 1980, for example, hospital admissions increased three times as fast as the population, pushing hospital costs to a growth rate close to 20 percent in the first half of 1981. In 1978, that rate was less than 12 percent. Other measures also suggest major increases in the intensity of medical service use.
One likely explanation for some of this step-up in expenditures is that pressure on hospitals and physicians to curb medical costs has almost disappeared. From 1977 to 1980 while the Carter administration's hospital cost containment proposals were actively debated in Congress, the growth in hospital costs declined sharply as the hospital industry, hoping to forestall legislated controls, entered into a voluntary effort to restrain increases. The Carter proposals died in Congress during 1980. The Reagan administration made clear its lack of interest in reviving the proposals. Instead, it began to dismantle the professional review system that, whatever its shortcomings, had at least kept some watch on hospital admissions and lengths of stay.
Setting direct limits on hospital and other medical costs is, no doubt, heavy-handed medicine. Price controls interfere with efficiency and quality of service in the medical market just as they do in other markets. The medical market, however, doesn't work very well in any case. All the pressures involved conspire to make both physicians and patients seek the best possible care at almost any price.
In the long run, the administration hopes to curb this tendency by changing the terms of insurance coverage and reimbursement practices in an effort to improve incentives for patients to consider the cost of what they're buying and for physicians to consider the cost of what they're prescribing. In the short-run, however, the administration may want to consider that its alternative proposals to the medical industry might become much more acceptable-- and the need for drastic action be greatly reduced-- if a more direct threat in the form of some stiff controls were also on the bargaining table.