The Effect of Medical Technology on the Cost and Availability of Health Insurance


Many new medical technologies are produced across the world in attempts to improve the well-being of the human race. Some of these new technologies, however, are very expensive and are not efficient. This study was designed to investigate if the rising cost of health insurance actually has a correlation with the recent increase in medical technology and what factors, if any, cause the relationship. Sources were found and evaluated to help assess if there were specific technological innovations that caused such an increase in health care costs. Furthermore, several characteristics of these types of technology were compared: approximate cost, efficiency, popularity, etc. Technology was not found to be the sole cause of the rising cost of health insurance but a positive correlation between the two was observed, indicating that it was the most influential factor.

Table of Contents: 

    What Is Considered Modern Medical Technology?

    Paying for health care is expensive partially because of the unforeseen costs of which the patient may be unaware. Take this scenario for example: Mr. A believes he has sprained his ankle and visits a local clinic to be treated. He does not have medical insurance but does not expect to pay much more than $200. He figures he will only have to pay for an x-ray and an office visit. As he is checking out at the clinic, he was greatly surprised to find that his total was well over $500. The only expenses that he expected to pay were the office visit and the x-ray. What could he have missed that doubled his bill?

    In order to assess the reasons why technology affects the cost of health care, a definition of medical technology must be established. The term medical technology encompasses a vast range of items that are used in the modern medical world. At first glance, the term may be thought of as only the instruments, devices, machines, and supplies that are used to administer medical care. However, a deeper exploration of the term reveals much more than one might think. Technology is the extension of knowledge that pertains to the formation and use of technical means and the relationship with life, society, and the environment. Therefore, medical technology is any therapeutic entity or procedure and all the costs that are required to maintain, use, transport, and safely dispose of the item (Rettig 1994). Even the medical professionals and those who develop the technology may be included in the expression. For the purpose of this study however, the term medical technology refers to any technique, drug, procedure, machine, device, or instrument that is used by health care professionals. Similarly to Mr. A, many patients, especially those without insurance, may have an expectation of what they plan to pay for, but are not able to fully account for the true cost of a sick visit. The purpose of this study is to help explain to potential patients what the payer (i.e. insurance company or patient) is actually paying for and how that cost makes health care more expensive and less attainable. Hopefully, this knowledge will provide the patient with an opportunity to take an active role in controlling the rising cost of health care. If patients truly understood what they were paying for, maybe they can refuse certain procedures or tests and lower the cost of health care for the nation.

    Is There a Correlation Between Technology Innovation and Health Care Costs?

    Recently, the nation has endured a tough recession, but it appears as though the health care industry is immune to the effects of the economic decline on costs. According to several studies, there is a direct correlation between the nation’s gross domestic product (GDP) and the portion of that product that is dedicated to health care. The gross domestic product refers to all products and services that a country provides in a year (Kaiser Family Foundation 2012). In the United States, a substantial portion of the GDP is spent on health care. The Centers for Medicare and Medicaid Services (CMS) comprise the annual National Health Expenditure (NHE) that shows how much the country spent on health care services and products. The NHE is often reviewed with the GDP to observe what portion of that nation’s total spending is used for health care. Recently, the percentage of the GDP that is allocated to health care has increased dramatically. Refer to Figure 1. Within the last fifty years, the amount of money spent on health care per person, also called the NHE per capita, leapt from $147 in 1960 to $8,953 in 2012 (Centers for Medicare and Medicaid Services 2012). Refer to Figure 2.  The percentage of the GDP designated for the NHE for this period of time rose from 5.2% to 17.9%. Refer to Figure 3. Such a rapid increase in medical spending indicates that the health care industry is growing much more rapidly than national overall income.  

    One of the leading theories about the rapidly increasing rate of health care spending is that the production and use of medical technology is growing much faster than expected. Manufacturing companies and research facilities are experiencing a flourish of medical innovations that are changing the way patients are treated and diagnosed. The production of prescription drugs, for example, has drastically increased within the last decade. Since 2000, there has been a 114% increase in the revenue gathered from the pharmaceutical industry. In 2010, prescription drugs alone accounted for 10% of the NHE. The health expenditures for that year totaled $2593.6 billion and prescription drugs were $259.1 billion (Kaiser Family Foundation 2012). It is suspected that this is due to a variety of different factors. One of the most prevalent factors is the implementation of the Medicare prescription drug benefit, or Medicare Part D, in 2006. This section of Medicare was enacted to assist beneficiaries with the purchase of expensive prescription medicines. As a result, patients with this Medicare benefit were more likely to fill their prescriptions as opposed to those that did not receive drug coverage (Catlin, et al. 2008). At the same time, larger portions of the population are growing older and are becoming Medicare beneficiaries. Experts believe that the number of people over the age of 65 will increase by one-third within the next decade (Kaiser Family Foundation 2012). This is caused by the baby boomers, born between 1946 and 1964 when there was a dramatic increase in the birth rate (Catlin et al. 2008). In addition, pharmaceutical companies began to produce generic drugs to help deflect the cost of name brand drugs on individual patients. The rate of generic drug dispensing increased to 63% in 2006. (Catlin et al. 2008). This persuaded many people to buy more drugs because they were available at a cheaper price.

    Although pharmaceuticals contribute to a large portion of the NHE, a shift in the way patients are being treated is just as important. Patients with terminal illnesses, such as cancer, had a very miniscule chance at survival due to the scarcity of treatments available to them. Cancer research first began in the early 1900s and has progressed dramatically in the past century. In the early stages of research, treatment options were nearly nonexistent and patients with the disease were often quarantined and left to die (DeVita and Chu 2008). The only cure at the time was surgery, which typically did not rid the person of all tumors. As more information about cancer became available and more healing options were discovered, more money was spent on cancer and chemotherapy research. In 1971 the National Cancer Act was enacted and brought national attention to the subject. In 1972 $9 million dollars was devoted to cooperative groups such as the National Surgical Adjuvant Breast and Bowel Project (NSABP) to oversee clinical trials of cancer drugs. By 1980, this amount more than quadrupled to $112 million dollars (DeVita and Chu 2008). This trend has continued over the last 30 years. In 2005, the National Institutes of Health launched its Cancer Genomics project. The project was expected to cost $1.5 billion dollars and would take approximately 10 years (Check 2005). Although the nation is getting closer to finding a cure, a huge portion of its revenue is spent on just one disease. However, such a sacrifice may be necessary to end cancer. Although cancer treatment is a prime example of technology that consumes a large amount of money, it is not the only example. There is much to be said about how much money is invested in technology driven toward one specific disease. Imagine the amount of money used to find treatments for a multitude of other diseases.

    What Factors Cause Technology to Raise the Overall Cost of Health Care?

    The rapid growth of technology has given society the idea that new technology promotes higher quality health care. Typically, only the benefits of new innovations are presented to the public and to health care officials and faults are often overlooked. Most ideas that are put on the market are not fully evaluated and harmful implications such efficacy, the impact on medical practices, precedence, and their futility in routine care are not presented to the public (Deyo 2002). These factors have helped create a phenomenon called the Cascade Effect. The Cascade Effect is defined by the initiation of an event by an anxious physician or patient that leads to a downward progression of other events such as unnecessary tests or procedures performed on a patient (Mold and Stein 1986). One of the leading factors that makes health care unattainable and expensive is overuse of the technology. When tests and procedures are performed with unreasonably high costs, the amount of money spent by the patient and their insurance company (if they have one) spikes. Insurance companies often use this increase in cost as a reason to increase deductibles, co-pays, and premiums that the patient will have to pay. As this cycle continues, more people are no longer able to afford health insurance and a much larger percentage cannot afford health care at all.

    Contrary to common belief, most standard medical researchers do not practice comparative effectiveness, that is comparing new ideas to current treatments to determine which is better. They often only evaluate whether or not a new treatment works better than no treatment at all (Nather 2010).  Therefore, this “boom” of medical research may be futile and repetitive. According to the Centers for Medicare and Medicaid Services, the U.S. spent approximately $483 per capita on research dedicated to the medical field (CMS 2012). In 2010, the U.S. resident population was approximately 308,745,538 (Bureau 2010). Theoretically, this means the country spent $135,230,545,644 on medical research alone. This number does not include the money donated to independent research groups and other investments that are not reported to the government. A substantial amount of money could possibly be saved if there were higher standards on the types of ideas can be funded. Research that is not expected to create a product that will work better than those already on the market probably should not be supported.

    Another factor contributing to the rising cost of health care is the fact that society has become far too dependent on technology and digital entities. Hospitals, clinics, physicians, nurses, and patients rely heavily on medical technology to diagnose, treat, and end disease. This dependency may be warranted but may also be a hindrance to the expansion of health care to a wider population. Many patients do not feel as though the physician has adequately evaluated them if tests and procedures are not performed. Working at an urgent care clinic, I have seen dissatisfied patients storm out of the clinic because they felt that they were being cheated. They believed that the physician simply looked up their nose, or shined a light in their throat, and diagnosed them with sinusitis or strep throat. Although the physicians have been trained to recognize obvious ailments and infection simply by examining the person, the patient expects to see results of a test proving that the physician is correct. Although medicine is vital and in engulfed in morals, it is still, none the less, a business. The business owner is the physician who will go at great lengths to make their customers happy because patients who do not return are not bringing in revenue. Consequently, a lot of physicians order unnecessary tests in hopes of gaining the patient’s trust and making them feel comfortable with their diagnosis decision. These “small-ticket” technologies may not cost that particular patient very much money but the accumulation of these technologies enlarges the overall cost for people who are not treated (Moloney and Rogers 2010). According to the Institute of Medicine, approximately $800 billion is spent on care that does not make the patient better (Nather 2010). Also, manufacturers know that people are dependent on technology so they can easily keep the prices of technology high. People feel that technology is necessary to their treatment (which is valid most of the time) so they are more willing to pay the higher prices. This, unfortunately, hinders those who are not financially stable enough to pay for treatment and more of the population goes untreated. After a while, this could create a detritus circle of a small pool of people that can afford health care while most of the rest of the country suffers (Nather 2010).

    What Is Being Done to Diminish Increased Health Care Costs Caused by Technology?

    One of the most recent changes to healthcare is the Affordable Care Act (ACA), or Obama Care. The main purpose of the ACA is to help make health care more affordable and attainable by changing many of the rules insurance companies currently follow. To do this, the government will change a variety of factors including but not limited to requiring everyone to have health insurance, getting employers more involved in the coverage process, and new health insurance exchanges (Nather 2010).

    A major issue that contributes to technology increasing the cost of health care is the lack of communication between doctors caring for the same patient. Patients will often find themselves unhappy with the diagnosis they receive from one physician and may go to another office where similar tests and treatment plans are provided. This unnecessary repetition of treatment is a major reason why the U.S. spends so much money on health care. The cycle can easily be prevented by forming a line of communication between physicians. Per the ACA, a new type of insurance plan, called Accountable Care Organizations, will be created to get a variety of health care providers to work better together. Accountable Care Organizations (ACO’s) are groups of physicians, specialists, nurse practitioners, and hospitals that work cohesively to ensure effective treatments of their patients while limiting the amount of unnecessary tools that are used (Nather 2010). This is achieved by giving the providers within the organization a fixed payment for each patient and grading their performance according to overall quality of treatment. This means that the health providers are encouraged to keep communication open in the group so that the patient’s treatment will be much smoother. Their goal will be to save money by using each other as opposed to sending the patient to other providers. For example, if the primary physician requests that the patient gets an MRI but they do not have the correct equipment available in their office, the patient can be sent over to a specialist or to the hospitals that are a part of the organization so that the physician has full access to the patient’s condition. ACO’s are expected to be very beneficial to Medicare recipients.

    Another way the government plans to contain health care costs is by creating bundled payment systems. This system works by requiring hospitals to share money with primary care physicians (Nather 2010). Currently, there is no incentive for the two types of providers to cooperate because the payments they receive are exclusive. The physician receives payment for the services rendered at his office and the hospital receives a separate payment. The more services provided the greater the payment. The bundling system gives the patient a single payment that will cover all of their medical expenses for both locations. The more tests and procedures that are performed, the more it cuts into the budget given to the patient and decreases the providers’ profit. This is expected to work extremely well with victims of chronic conditions such as high blood pressure, hypertension, and diabetes. Many people are afraid of this system because doctors could cut corners in order to reap more profit. However, cheap treatment is offset by the fact that the allowance is only given once a year. So, if the patient does not get better, the hospital and physician must lose some of their profit in order to accommodate the patient.

    Extensive research has already been done to show that medical research consumes a lot of the health care budget. To combat this, the ACA will promote comparative effectiveness research. The Agency for Healthcare Research and Quality is a federal agency that is responsible for deciding what types of research projects get funded and improve the quality of health care. Most research projects do not test innovations that may work better than those already on the market for the same condition. Instead, research is geared towards finding technology that works better than having no treatment at all. Comparative effectiveness research evaluates different ways of treating the same condition to determine which is more effective and efficient (Nather 2010).

    Prescription drug coverage will also be changed dramatically with the new health system. When Medicare Part D was enacted in 2006, a “donut hole” was created in which beneficiaries paid an average of $6,440 out of pocket for their prescription drugs. Recipients of the benefit were required to pay a $310 deductible before the Medicare covered 75% of the cost. Once the patient reached $2,830, they were required to pay in full for prescription drugs. Only after they spent a total of $4,550 did Medicare cover 95% of their expenses (Nather 2010). Apparently only 15% of all Medicare beneficiaries were able to leap out of the donut hole and reap the full benefits of the plan (Kaiser Family Foundation 2010). The ACA plans to close this donut hole by slowly adding more benefits every year. In 2010 Medicare will provide patients with a $250 rebate and in 2011 a 50% discount on brand name drugs. By 2013 there will be a 50% discount on brand name drugs and subsidies for generic drugs will increase. Hopefully, by 2020 patients will receive a 50% discount on brand name drugs and will split the rest of the cost with Medicare. They will only be responsible for 25% of generic drugs (Nather 2010). Hopefully, by 2014 the gap will be closed, lowering the burden of drug expenses on many people.


    The rising cost of health care is a huge issue that has made it very difficult for most people in the country to find affordable care. If this trend is not stopped, health care will consume nearly the nation’s entire budget. The government and health care officials must find a way to make medicine available to more of the population. However, this is not just a national burden. Patients need to take a more active role in their treatment. Asking questions and researching possible treatments that may work for them could help immensely. Also, using preventative care methods such as pursuing a healthier lifestyle and adhering to their physician’s requests can help lower the chance that they will need to use expensive technology later in their life. Finally, people must realize that just because their insurance covers a lot of their medical expenses and they pay very little when they do visit the doctor, this money must be collected elsewhere, usually from the uninsured. Everyone (i.e. the government, health care professionals, insurance companies, and patients) must work as a cohesive team to keep technology from making medical costs skyrocket.


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    Figure 1. Yearly National Health Expenditures and the Gross Domestic Product

    Figure 2. Yearly National Health Expenditures per Capita

    Figure 3. National Health Expenditures as a Percentage of the Gross Domestic Product