The Causes of Health Care Inflation in the United States and the Solutions Adopted by the Employer Market

Abstract

Beginning in the late 1990's health care costs in the United States began to rise to the point of double digit increases in the cost of providing health care. Health care in the United States is mainly distributed through employer provided health care. The employer provides health care coverage as part of their employee's benefits. The reason for the sharp increase in health care costs can be attributed to nine factors. These factors include third party payers, an imperfect market, technology, the increase in the elderly population, the model of health care delivery, a multi-payer system, defensive medicine, fraud, and practice variations. Each of these factors has some affect on the health care market. As a result of the vast increase in health care costs, employers have implemented solutions to combat the rising prices and to ease the effect that the costs have on them. One solution that has been introduced is E-Health. E-Health is the providing of health care information through the Internet. Another strategy used is the formation of a worksite wellness program. In a worksite wellness program employees have the ability to learn about living and eating well. A third strategy used by employers is Disease Management programs. These programs are designed to help employers ease the affect of their health care costs as a result of their employee's chronic diseases. Employee's chronic diseases are managed through the program. A fourth strategy employers use is three-tier drug co-pays. This strategy has been implemented so that employees now have to provide some form of co-pay when they purchase prescription drugs. A final strategy has been developed to combat health care costs but is so new that any employer has not tested it. This strategy is called defined contribution and in this strategy employers would 5 give a lump sum of money to their employees who then would in tum purchase their own health care. The health care system of the United States has been undergoing rising costs for the past two years. Employers do not see an end in sight for the rising cost trend. Employers who have implemented the above strategies have shown to have a return on investment if these strategies are implemented with care and close attention. In many cases these strategies have helped employers save millions of dollars in health care costs.