Health care costs continue to rise

¶ … Health Costs: Steeper Still" outlines some of the key challenges facing corporate America with respect to the rapid rise in health care costs. Health care costs are rising rapidly and are expected to rise a further 94% by 2020. Cost containment is now the major goal of health care reform for many American companies. The article also outlines some of the steps that companies are taking to reduce their health care costs. Some companies are focusing on preventative measures, such as the promotion of healthier lifestyles. Larger companies are addressing the issue in other ways -- Cisco provides a health care clinic on site. Disease management and disease screening programs are also becoming more popular.

Relationship to key concepts:

The rise in health care costs is an issue that concerns both micro and macro economics. In terms of microeconomics, the dramatic increase in health care has driven many companies to make different purchasing decisions regarding the health care of their employees. For example, the decision to increase wellness programs. This in turn drives growth in the health care industry overall. As well, the choices that employers make with regards to the insurance they provide, the amount of co-pays is impacted by these rising costs.

On a macroeconomic level, there is even greater impact. The article outlines that wage growth has been sluggish over the past decade. This is a direct result of the rapid rise in health care costs, and it has a significant impact on the economy overall. Consumers have less money to spend, for example, because real wages are stagnant or in decline. Retirement savings are also being sacrificed in the name of health care. This will impact the economy dramatically as future purchasing power is reduced. The spiraling cost of health care is causing havoc with the American economy not just today, but in the future as well.

Firms need to budget for the health care expenditures. They must understand the capital outlays required for health care and make plans to fund these outlays. Firms that budget for health care effectively are the ones that are spending on prevention and increasing co-pays, to ensure that outlays are reduced and inflows are increased.

Analysis: The rising cost of health care is a major concern for firms. They need to remain competitive, but increasing amounts of their budget are tied up in health care costs. The estimate of $29,000 per employee just on health care costs ten years from now has a profound impact on the budgeting process. Firms have several ways to address this issue. In the article it was discussed that firms seek to lower the cost of health care by reducing the need for it. Over the long run, a logical conclusion is that firms will make investments in technology or techniques that allow them to employ fewer people. Budget decisions and investments today will lead firms down that path, so that when the $29,000 day comes they have fewer employees to cover.