NCPA - National Center for Policy Analysis

What's Behind Rising Health Care Costs?

May 7, 2002

A new report by PriceWaterhouseCoopers explains many of the factors driving health care costs higher. Among the leading culprits are litigation, mandates, regulation, fraud and abuse -- accounting for a 13.7 percent increase in premiums last year for large businesses.

Health care mandates also continue to spiral. Numbering more than 1,500, state and federal mandates increased 25-fold between 1970 and 1996. Furthermore, a Senate-approved "patient's rights" legislation would add 89 new mandates if adopted.

Among the key findings:

  • Twenty-seven percent of the increase in premiums last year was due to litigation, mandates, regulation, fraud and abuse.
  • Money spent on litigation related costs (medical malpractice premiums, class-action lawsuits and defensive medicine) was responsible for $5 billion in new health care spending last year.
  • Money spent on litigation-related cost alone could have covered nearly 2 million uninsured.

The study identifies a need for "real reform" including litigation reform, regulatory reform, and moving to a health care system where medical decisions are made based on science, not local custom or habit.

Source: PriceWaterhouseCoopers, "The Factors Fueling Rising Healthcare Costs," April 2002, American Association of Health Plans.


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