Reasons for Increase in Healthcare Cost

 The portion of gross domestic product that is created by the health care industry is growing faster than any other sector. The cost of healthcare has dramatically risen over the past years in the United States. The rising cost of health care provision has been attributed to various factors including: a complex payment system, heavy investments in healthcare system and low growth of productivity. The system of payment in the U.S healthcare system is a third party system. This is where healthcare cost of an individual is settled by a third party such as insurance company, government program or other third party (Finkler & Ward 2006). This system has made American Health consumers less price conscious and to over utilize healthcare services. Insurance companies in order to protect themselves from losses as result of over utilization of health care services by the insured increase the insurance premium thereby increasing the cost of health care.

Another reason for increase in health care cost is attributed by investment in healthcare system (Gapenski, 2008). Health care organizations have to invest in healthcare facilities, technology, equipments, research among other things. In most cases the cost for making such investment is left to the healthcare organization. To find ways to raise funds for financing such massive investments, healthcare organizations increase their cost of service provision. Low growth of productivity in the Healthcare system has also lead to increased costs (Finkler & Ward 2006). As consumers are increasingly demanding for healthcare services there is less improvement healthcare facilities and the number of healthcare providers. The huge amount of cost incurred in healthcare does not go into improvement of actual healthcare services but to other organizations such as insurance companies.

Reference

Finkler, S. A. & Ward, D. M. (2006), Accounting Fundamentals for Health Care Management, Jones and Barlett Publishers, Inc

Gapenski, L. C. (2008) Healthcare Finance, 4e. Health Administration Press and Association of University Programs in Health Administration

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