SWM518: Analyzing Healthcare Expenditure Growth, Drivers, and Policies

This essay provides a comprehensive analysis of healthcare expenditure growth and its key drivers, including unhealthy lifestyles, aging populations, and climate conditions. It explores the significant impact of an unhealthy lifestyle on rising healthcare costs, citing examples from Australia and globally. The essay delves into various policy implications for controlling expenditure, such as value-based payment models, promoting generic products, and increasing transparency in costs. It highlights the importance of government initiatives, public awareness campaigns, and individual responsibility in maintaining a healthy lifestyle to mitigate rising healthcare expenses. The essay supports its arguments with statistical data, research findings, and real-world examples, offering a detailed overview of the complex factors influencing healthcare expenditure and potential strategies for cost management.

HEALTH CARE EXPENDITURE GROWTH AND ITS
DRIVER

2
Table of Contents
Introduction................................................................................................................................3
Major drivers of the growth of healthcare expenditure..............................................................3
Impact of an unhealthy lifestyle on health care expense............................................................6
Discussion about policy implication for controlling healthcare expenditure.............................9
Conclusion................................................................................................................................12
Bibliography.............................................................................................................................13

3
Introduction
Expenditure for managing health has increased to a greater extent, which is impacted by
different drivers like pollution and unhealthy lifestyle. Expenditure of money for managing
health-related problems is known as healthcare expenditure. Spending on health is increasing
at a faster rate than the rest of the global economy. Spending on health, accounts for 10% of
the global GDP. According to a new report on global health expenditure by WHO, spending
on health has increased especially in low and middle-income countries on an average of 6%.
On the other hand, in high income countries, this rise is only 4%1. In middle income
countries, health expenditure of government has doubled. Different drivers like unhealthy
lifestyle, increase in pollution and unfavorable climatic conditions have impacted in this rise
of expenditure. In this essay, different factors have been critically analyzed. Impact on
unhealthy lifestyle on rise in cost has been explained and different policies are described.
Major drivers of the growth of healthcare expenditure
Several factors are there, which impacts healthcare expenditure and these factors are termed
as cost drivers. Some common cost drivers of healthcare industry are mentioned below,
Lifestyle
Unhealthy lifestyle of people is causing illness and it is forcing people to spend a huge
amount for getting healthcare services. It has become a global issue, which is increasing
health expenditure of mainly urban population. For example, near about 27500 people die per
year in Australia due to an unhealthy lifestyle. In this country, approximately 12% of total
populations consume tobacco and near about 15% of the population intake excessive
alcohol2. It has been found that more than 95% of Australians do not intake vegetables and
1 Countries Are Spending More On Health, But People Are Still Paying Too Much Out Of Their Own Pockets
2 Liotta, Unhealthy Lifestyles

4
fruits for being healthy and near about 52% of the population are unable to perform daily
physical activities. This is the reason behind gradual hike in the health expenditure in
Australia.
Climate conditions
Change in climate is increasing the burden of health expenditures. Changing patterns of
climate like concentration of ozone is giving rise to different diseases. In different African
countries rise in temperature has increased magnitude of diseases like malaria. Moreover,
change in climatic conditions has decreased the availability of water in different countries.
Different water-borne diseases like diarrhea have also increased in different African and
Asian countries due to change in climate3. This has increased healthcare expenditure of both
government and public. Rise in mean temperature is increasing different vectors of diseases
like anopheles mosquitoes that are spreading diseases.
Diseases
People from all over the world are suffering from different types of diseases and it has
become one of the cost drivers of healthcare expenditure. The Global Burden of Disease
Study 2017 has revealed that near about 38 Billion people were suffering from more than 359
kinds of diseases and injuries4. It has been found by World Health Organization that
approximately 84 risk factors in near about 195 countries and territories. These statistics have
created excessive pressure on healthcare units and automatically healthcare organizations
have increased cost of treatment for more benefit.
Pollution
Different pollution like air pollution is increasing its impact on public health. About 95% of
the total population still relies on solid fuel and natural resources that cause air pollution. This
gives rise to different diseases like asthma and bronchitis. Moreover, water and land pollution
3 Murthy, NR and Okunade,”Determinants of US health expenditure”, 67
4 "Findings from the Global Burden of Disease Study 2017"

5
are increasing the rate of skin diseases. This is impacting on total healthcare expenditure.
This impact is more significant in low-income countries of Asia and Africa. Greater CO2
emissions have a serious impact on health and this gives rise to different chronic diseases.
The population of the city is more likely affected by this serious threat. Moreover, the
productivity of labor is also decreasing that is impacting on the industries. Emission of
harmful gases like SO2, CO2 and NO has increased that is causing air pollution5. Moreover,
the use of plastics has also created water pollution that is giving birth to different skin
diseases. Hence, healthcare expenditure of a family is increasing.
Aging of population
Elderly population is one of the main reasons behind higher health expenditure as this kind of
population requires more healthcare services. Countries with a higher number of people
above 60 years experience higher health expenditure than other countries. In 2017, near about
15% of total Australian population were above 65 years6. At that year, Australia has spent
more or less $7400 per person for healthcare services. It means that higher requirement of
healthcare services in aging population is leading to higher healthcare expenditure.
Longer life expectancy
For achieving longer life expectancy, expense of healthcare is increasing. Different advanced
technology has been devised to provide proper health support to the population. Thus, rise in
expense can also be seen.
5 "The Cost Of Air Pollution - OECD"
6 Hauck, Katharina and Zhang, “Heterogeneity in the effect of common shocks on healthcare expenditure
growth”, 1090

6
Figure 1: Health expenditure vs life expectancy
(Source: "Life Expectancy vs. Health Expenditure". 2019)
In the above figure, it can be seen that health expenditure in advanced countries like Australia
has increased at a steep rate. This is because the advancement of technology has occurred
with time in health sector and using those technologies involves money7. Thus, increase in
life expectancy has impacted in the expense rate of global population. In other medium-
income countries, this expenditure is low as compared to developed countries. This is
because advancement of technologies is more visible in developed countries.
Impact of an unhealthy lifestyle on health care expense
Unhealthy lifestyle makes people dependent on healthcare system and it increases health
expenditure. A population with an unhealthy lifestyle requires more healthcare services and it
creates extra load on the healthcare organizations. They recruit more people in their system to
provide better care to all8. Additionally, demand for healthcare products increases rapidly.
Due to these reasons, healthcare expenditure increases all over the world. Unhealthy lifestyle
includes habit of smoking, consumption of excessive alcohol and unhealthy junk food. These
7 "Life Expectancy vs. Health Expenditure"
8 Zimmet, “Diabetes and its drivers”, 1

7
incorrect activities lead people to suffer from different chronic diseases. For example,
unhealthy eating habit leads to cardiovascular diseases and smoking causes cancer. Lack of
physical activities is making people lethargic and less immune by nature. The standard of
living is improving day by day all over the world and people are getting opportunities to lead
unhealthy lives.
Intensive studies have taken place to understand the relationship between healthcare
expenditure and the economic condition of OECD countries. It has been found that public is
spending the majority of health expenditure within low-income countries and government is
no paying equally. It means that an unhealthy lifestyle is making people spend money on
healthcare and government of countries is not providing sufficient support9. In most of the
low-income countries, government pays lower than 50% in the total healthcare expenditure.
People of these countries must be more careful about their lifestyle for ensuring wellbeing.
On the other hand, the government must spend more capital on health to protect the health of
their countrymen. Many people do not know about the adverse impact of unhealthy lifestyle
on their health. Government of countries must spend capital in campaigning to convey social
message of being healthy by focusing on a healthy lifestyle.
In case of higher income countries, people are leading an unhealthy lifestyle and it has
become one of the main reasons behind the gradual increase in healthcare expenditure. It has
been found that the rate of occurrence of diseases including diabetes, cancer, and others are
increasing day by day due to an unhealthy lifestyle. This finding is indicating that these
countries are experiencing higher expenditure on healthcare. Different cultural beliefs, lack of
knowledge and ability of people to spend money on unhealthy food, alcohol, and tobacco are
the main reasons behind unhealthy lifestyle. For example, near about 3.3% of Australians are
aboriginals10. Different cultural beliefs and unhealthy lifestyle can be seen in this community,
9 Howdon, Daniel and Rice, "Health care expenditures, age, proximity to death..”, 61
10 Marino, Morgan, Lorenzoni, and James, "Future trends in health care expenditure.", 23

8
on the other hand, the majority of other Australian communities with high income are
consuming fast foods, smoking and consuming alcohol. Due to this reason, Australia is
experiencing a hike in healthcare expenditure. Health expenditure of territory and states has
increased by 9.8% by the end of 2017 in Australia. On the other hand, it has been found that
health expenditure per person has increased by about 3% between 2015 and 2017. Total
health expenditure in Australia was recorded at approximately $180.7 Billion in 2016-2017.
These statistics are showing that unhealthy living in Australia has influenced the growth of
healthcare expenditure in this country.
Figure 2: Government health expenditure in Australia
(Source: “What’s Driving Health Care Costs?”. 2019)
Government of countries spends a large amount of total health expenditure. The above-
mentioned figure is showing the initiatives of the Australian government towards healthcare
expenditure11. It is important to educate people to lead a healthy lifestyle. Government of
different countries is liable to arrange healthcare programs and campaigns to educate people
regarding different aspects of maintaining well being. On the other hand, people need to
understand the importance of leading a healthy lifestyle and they must cooperate with
11 “What’s Driving Health Care Costs?”

9
government in controlling healthcare expenditure. It is the duty of healthcare professionals to
communicate with people from different community for helping them in avoiding unhealthy
practices rather than making profits from this situation12. Maintaining a healthy lifestyle can
allow people to avoid many chronic diseases and they may be able to reduce their
expenditure on healthcare by considering this approach in future. Different activities in daily
life like brisk walking, lots of physical activities and yoga can help to gain a healthy and fit
life. Moreover, healthy diet like having fruits and green leafy vegetables can help people to
provide all the essential nutrients to the body. However, majority of the global population
especially young aged peoples are indulged in having junk and greasy foods. This is
impacting on general health of the global population.
Discussion about policy implication for controlling healthcare expenditure
Different policies can be implicated for controlling this growing expenditure of healthcare.
Different policies must be framed by the government and other public bodies because the
growing expenditure is also impacting on government. Growing expenditure of healthcare
can impact on economic stability of low-income people. Hence, it needs to be controlled by
the government through the process of effective policies.
A model of value-based payment can be adopted to control the growth of healthcare
expenditure13. In this model, the hospital and physicians are paid on the basis of patient’s
health outcomes. Under this model, an agreement can be signed between patients and
healthcare providers. They are getting rewarded for helping the patients to reduce the effects
of diseases in health. Hence, the fee for service can be eliminated in this model and
healthcare provider can be paid on the basis of service they have provided to the patients.
12 Lohmann and Lechtenfeld, "The effect of drought on health outcomes..”, 433
13 Arena, McNeil, Sagner and Hills, "The current global state of key lifestyle characteristics”, 422

10
Another essential policy that can be implemented is developing generic products that are
related to healthcare service. This policy can help to reduce expense for buying medicines
and other requirements. This policy needs to be applied in low-income countries that can help
patients to buy medicines at a lower price14. Moreover, government needs to eliminate any
delay or barrier in the entry of generic products. This can help to reduce the price of products
and help low-income population of the country. Government needs to collect regular update
about market price of medicines and other necessary accessories for providing treatments that
can help them to inspect the market properly.
In addition, government must promote meaningful transparency on cost and price sharing.
This can be done by establishing standards for different insurers. They need to provide
estimates of total cost paid and information about cost-sharing to patients. This can help to
increase transparency of the process and loss of money can be eliminated15. Moreover,
transparency can be increased by creating a national standard for service providers. This can
guide them to display regular billing information in a proper way. This information should be
shared in such a way that can be accessed by families of patients easily16. Information about
products received by patients, costs of products and time of application of the medical
product must be transparently shared by the concerned authorities. Moreover, rules need to be
framed to protect the patients from surprise medical bills. This can be done by disclosing the
bills in advance or during the provision of the service. Hence, they can be able to pay the bills
in a proper way. In addition, health care providers must ensure to create a mechanism of cost
savings. This can be done by making a savings or benefit plan through incorporation of
rebates and price concessions on different services that are availed by the patient17. This can
help patients who have low income and thus they can also enjoy the benefits of treatment.
14 Di Benedetto and Pfister, "Individual and combined impact of lifestyle factors..”, 1374-1375
15 Lippke and Schwarzer, "A computerized lifestyle application to promote multiple health behaviors..”, 225
16 Springmann and Scarborough, "Analysis and valuation of the health..”, 4146-4150
17 Apergis and Mukherjee, "US state-level carbon dioxide emissions”, 525

11
Commission of annual meetings needs to be done to analyze the report regarding price
increase of drugs and additional benefits provided by the manufacturers18. Hence, an illegal
increase in price can be controlled by the help of this process.
Outcome-based contracts need to be encouraged more specially in middle income countries.
These contracts can be defined as contracts that can be arranged to link price of a medical
product with value received from contracting entities19. This can help to improve the quality
of life and patient outcomes can also be improved. In addition, overall spending for medical
purposes can be reduced. Moreover, beneficiary cost-sharing can also be reduced by this
process. Regular assessments of these contracts should be done to increase transparency and
reduce errors.
Making better use of non-physician providers is another essential policy that can be
implemented to reduce expenditure. Different laws restrict non-physician health care
providers from practicing. For example, advanced practice nurses are not allowed to practice
without proper supervision of a physician. Using these non-physicians can increase the
workforce, which in turn can impact in competition rate. Hence, price of different healthcare
service will lower down. The non-physicians can be used in public hospitals that can help to
increase efficiency of these centers20. As service is provided at a lower cost in these hospitals,
therefore workforce must be increased. This can help many people to make use of the
services provided by these government-sponsored hospitals. Thus, healthcare expenditure can
be lowered and better service can be provided to patients.
Conclusion
From the entire discussion of this study, it has been found that rapid growth in healthcare
expenditure has become a global issue. In this study, different cost drivers have been
18 Yang, Jing, and Zhang, "Air pollution and healthcare expenditure”, 443
19 Preker and Keuffel, "Health care expenditures associated with pollution”, 711
20 Khoshnevis, Soheila and Khanalizadeh, "Air pollution, economic growth, and health care expenditure.", 1183

12
discussed. These cost drivers include unhealthy lifestyle, aging population, pollution, climate
conditions and longer life expectancy of people from all over the world. Due to the
occurrence of these cost drivers, healthcare costs are increasing. For example, Australia has
experienced a gradual growth in healthcare expenditure in each year. Unhealthy lifestyle is an
important cause behind this kind of scenario. This study has evaluated different aspects of
unhealthy lifestyle and its impact on the overall expense if healthcare. This scenario must be
changed for protecting the health of every individual. People from all economic background
can have healthcare support after controlling hike in the healthcare expenditure. This report
has proposed appropriate policy implications that can help to control healthcare expenditure
in future.