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Of the many reasons that exist, two are particularly important. The United States has a highly flawed system of funding health care and a flawed system of allocating its health care resources. In the United States, a multitude of private health plans cover the lucrative sector of society—low cost, healthy workers and their healthy families. But public programs must cover the higher costs of the elderly, individuals with permanent disabilities, and some low-income individuals. Since the uninsured are frequently unable to pay for the care they receive, the costs for their care are shifted to government programs or private plans, or to the charity of providers, even if unintended.
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To date, U.S. cost containment policy has focused too narrowly on demand-side interventions such as changing the design of insurance benefits and increasing cost sharing. This paper summarizes the factors responsible for the rise in health care spending during the past twenty years. As the data show, most of this rise has been driven by a rise in treated disease prevalence, fueled by an increase in population risk factors such as obesity and by innovations in the treatment of chronic disease. The bulk of the paper then outlines a series of reforms that are designed to