Major Budgetary Issues in Health Care

The budget of an organization, whether a business or a government, provides insight into how organizations allocate limited resources. A budget also reflects an organization's priorities, based on the activities it chooses to fund. Increasingly, rising health care costs and higher medical insurance premiums have posed major budgetary challenges for government health care systems and for companies that provide employee health coverage.

Rising Medical Costs

• Annual increases in medical costs pose tremendous challenges to the budgets of governments and companies. MSNBC reported in 2006 that health insurance premiums have risen faster than the rate of inflation, increasing 78 percent since 2000. "Business Week" magazine reported that health costs will rise another 9 percent in 2010. Rising medical costs mean employers, in the public and private sectors, have seen employee health coverage consume larger shares of their budgets.

Public Health Systems

• Government-run health care systems, including U.S. programs such as Medicare and national systems such as that of Canada and many European nations, rely on taxes to fund health care coverage for all participants (all citizens, in the case of national health care programs). As rising medical costs place greater demands on health care systems' budgets, governments may face unpopular decisions: increasing taxes to cover rising costs, reducing the scope of services, or limiting payments to medical providers. The third option could cause physicians to refuse, for example, Medicare and Medicaid patients in the U.S., for fear they would not receive adequate payment for their services. National systems that lack adequate funding, meanwhile, could find themselves refusing to cover some types of treatment or rationing care.

Employer-Paid Health Insurance

• Most working Americans with health insurance obtain such coverage through their employers, with the cost of premiums split between employer and employee. Rising health care costs, including new medical technologies and rising prices for prescription drugs, translate to higher insurance premiums. These higher insurance costs could force employers to spend a greater proportion of their companies' budgets on health coverage, which affects profit margins. Faced with rising insurance costs, many employers have reduced the scope of coverage they offer, requiring employees to bear a greater share of the costs through higher contributions, co-payments, and deductibles. In some cases, they have dropped health care coverage altogether.

State and Local Government Budgets

• Like the private sectors, state and local governments must cope with rising health care costs as well. Increases in health insurance costs for government employees also lead many elected officials to pass premium increases onto employees by requiring them to pay a greater share of insurance costs. In other cases, employees of many local governments, from public school systems to cities and states, have had to forgo pay increases as elected policy makers try to balance their budgets while covering the costs of higher health insurance premiums.