Rising Cost of Health Care

Report Outline
Urgent Need for Action
Past Approaches to Problem
Prospects and Alternatives
Special Focus

Urgent Need for Action

Reagan's Proposals for Controlling Costs

For Americans hard pressed by double-digit unemployment and high interest rates, one of the few encouraging developments during the current recession has been a fall in the rate of inflation. In 1982, the Consumer Price Index (CPI) rose by a relatively low 3.9 percent, five points below the 1981 figure. But one component of the index continued to climb at a faster rate than other consumer prices. The amount Americans spent on health care in 1982 rose 11 percent over the previous year to a record $321.4 billion; hospital costs alone rose 12.6 percent last year. And while consumer prices actually fell by 0.2 percent in February 1983, medical costs went up 0.8 percent. The portion of the nation's gross national product (GNP) spent on health care has risen from 6 percent in 1965 to 10 percent today.

The federal government's contribution to the nation's health care bill also continues to climb, as rising hospital and physicians' charges are reflected in the cost of Medicare, Medicaid and other public health programs. Combined outlays for Medicare, the federal health care program for the elderly, and Medicaid, the state-federal program for the poor and disabled, are projected to reach $75 billion in fiscal 1983, accounting for 9.5 percent of the federal budget.

President Reagan has described the rate of increase in health care costs as “excessive,” undermining “people's ability to purchase needed health care.” To help bring health costs under control, the administration has proposed a series of reform measures reflecting the president's often stated goal of reducing government influence and restoring public services to the private sector. One of these measures—a plan to set up a new system for reimbursing hospitals for treating Medicare patients—was approved by Congress March 25 as part of the Social Security rescue bill.