Whether you’re a small business owner or a small business advisor, here’s a phrase we all know too well - health care costs are rising. But, why? Here is a concise summary of eight key trends driving the rising costs of health insurance in America today.
1. Increasing Medical Costs
One of the primary root causes for the rise in health insurance costs are the increasing medical costs. The growth rate is slower than it was ten years ago, but medical cost increases still outpace inflation. There are several reasons for the rise of medical costs; we’ll cover the big reasons next.
2. Medical Providers are Rewarded for Doing More (Rather Than Being Efficient)
As we wrote about previously, most insurers -- including Medicare -- pay doctors, hospitals, and other medical providers under a fee-for-service system that reimburses for each test, procedure, or visit. On top of this, our medical system is not integrated which leads to repetitive tests and over-treatment.
3. Rise of Chronic Illness & Obesity
Did you know nearly half the U.S. population has one or more chronic conditions such as asthma, heart disease, or diabetes? Chronic illnesses combined with an aging population drives up costs. Additionally, two-thirds of adults are either overweight or obese, which also leads to chronic illness and inflated medical spending.
4. Healthcare is not Consumerized
Another reason for the rise in health insurance costs is healthcare is not yet fully consumerized. Most people do not pay directly for their health insurance -- their employer does. As a result, most people are disconnected from making truly informed decisions about their cost of care and their coverage.
5. Lack of Cost Transparency
Despite a wealth of information at our fingertips via medical journals and the Internet, there is no uniform or quick way to understand treatment options and the costs associated with them. This lack of cost transparency means consumers cannot make truly informed decisions - even if they are savvy healthcare consumers.
6. Carrier Consolidation
As Reid Rasmussen reported in a Benefits Pro article earlier this month, carrier consolidation will lead to decreased cost competition and higher costs. For example, the five largest health insurance companies are reducing to three with Aetna (#3) buying Humana (#5), and Anthem (#2) absorbing Cigna (#4). Additionally Assurant exited the health insurance business last year, 22 of the 23 PPACA-created co-ops have closed, and United Healthcare made news this month as they are leaving many ACA Marketplaces.
7. Fewer Plan Options & Smaller Provider Networks
As healthcare and health insurance costs rise, health insurance companies need a way to control costs. One approach is to limit plans offered. Another is to limit the provider networks. The result? Consumers in many markets are finding fewer plan options and have reduced access to doctors and providers.
8. Pharmacy Costs Skyrocketing
The final trend influencing the rising cost of health insurance is the skyrocketing costs of pharmaceuticals. As Rasmussen reported, up to 40 percent of the medical plan cost will be drugs by 2025.
The core reason for the rise in health insurance costs relate to the rising cost of healthcare in America, decreasing insurer competition, and the lack of transparency to make informed consumer decisions. What other trends are you seeing that are leading to rising health insurance costs?
We’d love to hear your perspective. Leave a comment below.