Why Health Care Costs Keep Rising: What You Need to Know

"We're rewarding in our health care system the production of more complicated services and more expensive services but we don't reward at least anywhere near the extent high quality, effective appropriate service care for patients," Guterman said. "The fee service system -- paying for piecework -- doesn't encourage treating the patient as a whole nor does it encourage providers working together to address the patients health as opposed to what they came in for."

Claxton said that the health insurance exchange system in Obama's health care bill, in which people will be able to shop for coverage, will save on search expenses and help reduce administrative costs. Proponents of the bill say it will help streamline efforts and reduce inefficiencies.

"Something needs to be done to help the health insurance market to work better and that's a really key issue and exchanges are intended to do," Guterman said. "If they work well, they can be very effective. As we're seeing in Massachusetts, it can be done."

Wilensky argues that the government needs to fix the way physicians are paid under Medicare and that there needs to be a more coherent system where they don't have to bill for various items under different codes, even if it's for the same patient.

"I am especially frustrated that so little attention is given at how physicians are paid at Medicare," she said, adding that it's "not a small sum of money."

Disease and Aging


There is no question that obesity has risen at an alarming rate in the United States. One-third of all adults fell in the obese category in 2007-2008, according the Centers for Disease Control and Prevention.

"We have issues relating to our lifestyle in terms of sedentary behavior, substantial increase in obesity etc. that also feeds into the demand for increasingly complex services and it's why tackling these issues is not easy," Wilensky said.

At the same time, as the baby boomer generation retires, there is increasing pressure on the cost structure to treat ailments.

Health care costs for chronic disease treatment account for 75 percent of national health expenditures, according to Kaiser.

Medical Malpratice

One of the biggest complaints that Republicans have put forward is that the Democrats' and Obama's bills do not include any provisions for medical malpractice overhaul, which they argue is one of the biggest cost drivers.

It is true that medical malpractice costs are rising and physicians need to factor those costs into their patient fees to protect themselves. The Congressional Budget Office estimated that medical liability insurance premiums for all physicians across the country increased an average of 15 percent between 2000 and 2002. But there is heavy debate about how much it really impacts the bottom line. The CBO estimated that medical malpractice costs account for less than 2 percent of the national health spending.

Prescription Drugs:

According to Kaiser, hospital care accounted for 31 percent of national health expenditure in 2008, with physician and clinical services trailing at 21 percent. Compared to that, the cost of prescription drugs is less -- it only accounted for 10 percent of national spending -- but the alarming sign is that it is one of the fastest growing spending programs.

Since Medicare Part D was implemented in 2006, government costs have shot up significantly, with funding for prescription drugs for Medicare beneficiaries shifting from the private to the public sector.

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