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Eight Reasons For Rising Healthcare Costs Globally

Healthcare costs have increased each year since 1960, when the United States began tracking the national health expenditure per capita. Early in the COVID-19 pandemic, it was not clear how healthcare utilization and spending would change around the world. Although one might expect health costs to increase during a pandemic, there were other factors driving spending and utilization down.

In this article, we look into what healthcare is, what are the main reasons that are increasing the healthcare costs in the USA in particular and around the world, and how can international health insurance help with meeting costs.

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What is healthcare and what healthcare models are there?

Before we dive into the main reasons why healthcare is becoming more expensive, it helps to know about what types of healthcare are available on the global market.

Healthcare is a global industry encompassing both physical and mental health. It covers a range of functions, from the prevention, diagnosis and treatment of disease, illness and injury, to long-term recovery. Healthcare includes the types of services you could expect to find in most hospitals, surgeries and clinics.

It is important to differentiate healthcare from social care. Unlike healthcare, social care does not aim to treat illness, but is about providing long-term support with day-to-day tasks to people who need it. This could be because they are vulnerable, young, elderly, living with a disability or long-term condition that requires care, or approaching end of life.

Every country has its own healthcare sector, and each will operate slightly differently, but broadly speaking they tend to be based on one of four models:

  • The Beveridge Model is a nationalised model of healthcare where the government acts as the single beneficiary of the entire industry. This eliminates competition while allowing every citizen to access healthcare on a ‘free’ basis. Countries using the Beveridge Model include the UK, Spain, New Zealand and Hong Kong.
  • The Bismarck Model is a privatised model with high government regulation where companies fund employees’ healthcare out of payroll deductions. These deductions are handled by public insurance companies, who help to get their clients the best treatment when they need it. Central government usually controls pricing. This model is used by Germany, Japan, Switzerland, France and several other European and Asian countries.
  • The National Health Insurance (NHI) Model combines the public liability aspect of the Beveridge Model with the private service of the Bismarck model. Here, government acts as a centralised insurance provider, covering the costs of citizens’ healthcare by paying private healthcare firms directly. This is the model used by Canada, Taiwan and South Korea.
  • The Out-of-Pocket Model is where citizens must pay for their own healthcare while the government makes minimal intervention. This creates a wide market of private healthcare providers and insurance firms, giving citizens freedom to choose how their healthcare money is spent, but can also lead to high costs. This is the model found in India, China, much of Africa and South America.

Medical care can vary widely between countries – when you become an expat or a digital nomad, it’s something you quickly get to know – but which are graced with the world’s most advanced healthcare? We have come up with the countries viewed to have the most well-developed healthcare systems globally.

What is going on with healthcare in the USA?

While most developed economies use the Beveridge, Bismarck or NHI model, the USA has bucked the trend by traditionally using an out-of-pocket model to fund its healthcare. This has led to the USA becoming one of the most expensive countries in the developed world for healthcare. Americans and visitors alike often wonder why health costs are so high in the USA, a nation where per capita health spending is almost twice the average seen in other wealthy countries. The answer to this question is complex, and we look into why health insurance in the USA often costs more than elsewhere here.

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What reasons contribute to increasing healthcare costs globally?

In spring of 2020, healthcare use and spending dropped significantly due to cancellations of scheduled procedures to increase hospital capacity and social distancing measures to mitigate community spread of the coronavirus. Although telemedicine use increased sharply, it was not enough to compensate for the drop in in-person care. As the year progressed, healthcare use and spending began to rebound as in-person care resumed for hospital and lab services and COVID-19 testing became more widely available. However, overall health spending appears to have dropped slightly in 2020, the first time in recorded history. At the beginning of 2020, the outbreak of COVID-19 led health services spending to drop 8.6% in the second quarter of 2020 compared to the second quarter of 2019. This was largely due to social distancing and many Americans delaying or cancelling their elective procedures.

However, despite this historic drop, economists expect the pandemic’s effects to be short term, with health spending projected to grow at an average annual rate of 5.4% and reach $6.2 trillion by 2028. With no end in sight to rising healthcare costs, it’s important to understand what exactly causes these spikes in the first place.

1/ Increasing global population

At the beginning of 2021, the total number of people on earth is around 7.8 billion, with the birth rate more than double the death rate. Since, theoretically, every person on earth is a potential customer of the healthcare sector, prices can only remain constant if the rate of growth in that sector is consistent with the rate of population growth.

However, using hospital beds per capita as a measure for growth in the healthcare sector, we see many countries either breaking even or making a net decline year-on-year. Indeed, several of the world’s most advanced economies are among the net decliners, including France, Germany, Japan and Canada.

So healthcare has found itself in a position where demand outweighs supply, forcing prices up. However, while this may be the root cause of the rising costs of healthcare, it is not the only one – various other factors must be considered.

2/ Increasing demand for healthcare

Not only are there more people on earth, the needs of those people are growing more complex.

In 1950, the global average life expectancy was 47 years; in 2020, it was 73 years.

Because of this, Deloitte’s 2020 global healthcare sector outlook predicted that the ageing population (those over 65 years old) would increase by eight percent, from 559 million in 2015 to 604 million in 2020.

Since older people are more likely to require healthcare, and since the types of care they require are more likely to be resource-intensive (treatments for diseases such as cancer, Alzheimer’s, Parkinson’s and diabetes), this is creating a surge of demand.

The issue is particularly acute in Asia, where countries with the highest life expectancy (such as Hong Kong, Japan and Singapore) are feeling the tightest squeeze. Asian markets are also increasingly associated with high-fat diets and less active lifestyles, which has seen obesity levels increase, leading to an increase in non-communicable chronic diseases, such as cardiovascular disease, some cancers and respiratory illnesses.

According to Iber Global, rates of cardiovascular disease are projected to at least double if not quadruple in several Asian countries over the next two to three decades, with cancer and respiratory illness also set to put huge demand on the Asian healthcare sector.

Mental health is another factor affecting costs, with 39% of insurers predicting it will be among the three most expensive conditions in the 18 months from November 2020.

3/ Greater spending power

Not only are there more people on earth, those people are becoming wealthier too.

According to data from the World Bank, global GDP has grown every year since 1961 (with the exception of 2009) and, in 2019, reached $87 trillion. Furthermore, American research group Brookings Institution believe that the world reached a ‘tipping point’ in 2018, when more than half the global population could be categorised as middle class, meaning they had enough discretionary income to afford themselves greater commercial choice. Brookings also projected that the number of middle-class people worldwide will increase by around 160 million a year in the short-term.

What this means is that a growing proportion of global society has greater spending power, which not only allows them to meet the rising costs of healthcare, but also entitles them to a greater range of choices when it comes to healthcare suppliers.

Ensure you have investigated the healthcare system in the new country. Medical processes and practices can vary massively from nation to nation for factors such as cost, number of available health professionals, waiting times and what cover is available to expats.
Inez Cooper
Co-Founder & Managing Director, William Russell

4/ Greater availability of healthcare treatments

The healthcare industry is fast-moving, constantly evolving and highly competitive. This has been clearly demonstrated in the COVID-19 crisis, where multiple pharmaceutical companies raced to become the first to synthesise, approve and distribute a vaccine globally. This was ultimately achieved less than one year after the pandemic was declared.

There is a greater choice in treatments than at any time in history. Every year, huge scientific breakthroughs open new markets in various sectors. In 2020 alone, the Federal Drugs Administration in the USA approved 53 novel treatments.

With greater choice comes greater competition. While choice does create the possibility of budget options at the lower end of the market, in a sector like healthcare where quality is a key selling point, most customers naturally opt for the most premium products they can afford. This, in turn, drives competition at the higher end of the market, leading to escalating prices.

5/ Disruption

The digital revolution is also having an impact on healthcare costs worldwide.

Many patients are now able to access services such as professional consultations, testing and monitoring using the internet, wearables and other devices. These new avenues of competition have forced healthcare providers based in brick-and-mortar locations to drive up prices in order to cover their overheads.

The data show that this trend is set to accelerate in the long-term. According to McKinsey’s Digital Patient Survey, more than 75% of all patients expect to use digital services in the future. Furthermore, as so-called Millennials and Generation Z become the primary demographics requiring healthcare, health services will have to embrace a ‘third wave of digitisation’. Already, these digital-savvy cohorts are more likely to use apps for scheduling, viewing medical records and paying bills, and are more receptive to online consultations than previous generations.

Disruption of this kind is a recent phenomenon. As these technologically-enabled approaches to healthcare become more common, competitive and diverse, they are likely to be one of the key forces driving down the cost of global healthcare. But, for now, they remain at a premium.

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6/ Regulatory landscape and fraud

The global healthcare regulatory landscape is complex and constantly evolving. In the future, healthcare providers will continue to face a highly complex and rapidly changing set of global, regional, country and industry-specific regulations, laws and directives.

These cover clinical quality and safety, regulations on counterfeit drugs, identifying and eliminating corruption, and the ever-increasing danger of cyber security.

Many regulations are already in place to counteract the global problems of fraud and corruption in healthcare. The Global Health Care Anti-Fraud Network estimates that $260 billion – or around six percent of global healthcare spending – is lost to fraud each year, which can occur in several ways.

Health insurance fraud, whereby an insurer or government healthcare programme is targeted by a fake claimant, is a growing problem, while prescription drug diversion is anticipated to become more of a global problem than illicit drug production.

Tackling fraud and adhering to regulations all come with a price tag. Expensive security software must be purchased to protect confidential patient information from hackers. Healthcare costs must therefore rise to ensure data and patients are kept safe.

7/ Future healthcare approaches

We are on the cusp of a technological revolution in the healthcare sector. From 3D-printed devices, to virtual reality, biosensors and trackers, and even artificial intelligence, these technologies promise to completely transform the sector in the near future. However, until these technologies become more commonplace, they will surely revolutionise the global industry – but while they are still novel, they sell at a premium.

Writing for Forbes, Maria Clemens of health sector technology provider, Management and Network Services, said that technological advances had been serving the healthcare industry very well over the last few decades, but the cost of some technical advances was now contributing to the overall increase in costs. “In fact, new medical tech is responsible for 40-50% in annual cost increases,” she wrote.

In Southeast Asia, Singapore is leading the way with integration of its digital healthcare services by moving its national health information to the cloud. According to PwC Consulting, the project – named hCloud – will cost US$37 million for the first ten years.

8/ Globalisation

Where once it was the case that healthcare providers only competed within territories, now the competition is global. Buoyed by the low costs of international journeys, “medical tourism” is becoming an increasingly common trend.

Medical tourism is where an individual will relocate to a different territory to take advantage of their higher-quality and/or lower-priced healthcare sector. Where individuals do decide to relocate to treatment, they can take advantage of drugs or treatments not available in their own country, or access the same level of treatment for a lower net cost. Medical Tourism magazine ranks Canada, Singapore, Japan, Spain and the United Kingdom in the top 10 destinations for medical tourists.

This trend creates two effects: first, it places greater pressure on the healthcare industry in favourite destinations, driving costs up within that territory; and secondly, it removes the opportunity for local healthcare sectors to do business, thus compounding their lack of investment and so pushing a greater number of people towards medical tourism.

Is this therefore a sustainable trend? Time will tell – all we can say for certain now is that those sectors which attract higher numbers of medical tourists are also likely to experience escalating health costs as locals and non-locals compete for the same products and services.

Healthcare and insurance

As global healthcare costs go up, insurance becomes ever more important, but the cost of providing health cover also increases. However, if you are renewing your health insurance, there are a few options you can consider.

  • Shop around and compare your options for the most competitive deal, making sure your policy meets all of your needs. Also, consider the fact that pre-existing conditions may not be covered.
  • You may also be able to change the level of your cover, for example, the level of plan, optional benefits or excess levels. Talk to your insurer to find out more about your level of cover.
  • See how William Russell calculates your insurance premiums.
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