The average American spends a considerable amount of money on healthcare each year. Premium increases, higher deductibles and copays, and soaring drug prices result from spikes in healthcare costs.
According to the Centers for Medicare & Medicaid Services, in 2021, healthcare expenditures skyrocketed to $4.3 trillion. Despite the decrease in health services accessed in 2020 due to the COVID-19 pandemic, national healthcare spending is expected to reach $6.8 trillion by 2030.
With no end in sight to rising health insurance costs, it’s important to understand what exactly causes these spikes in the first place. Let’s take a look at seven reasons for rising healthcare costs in the U.S and how you can offset your expenses with an HRA from PeopleKeep.
Seven reasons for rising healthcare costs
1. Medical providers are paid for quantity, not quality
Most insurers—including Medicare—pay doctors, hospitals, and other medical providers under a fee-for-service system that reimburses each test, procedure, or visit. That means the more services provided, the more fees are paid.
This can encourage a high volume of redundant testing and overtreatment, including patients with unlikely potential to improve their health.
On top of this, the U.S. medical system is not integrated. The World Health Association defines integrated health services as “the organization and management of health services so that people get the care they need, when they need it, in ways that are user friendly, achieve the desired results and provide value for money.”
So what does that have to do with cost? Integrated health means providers, management, and support teams communicate with one another on a patient’s care. On the other hand, in an unintegrated system, the lack of coordination can result in patients receiving duplicate tests and paying for more procedures than they truly need.
2. The U.S. population is growing more unhealthy
According to the Center for Disease Control and Prevention (CDC), more than half of the U.S. population has at least one chronic condition, such as asthma, heart disease, or diabetes, which all drive up health insurance costs. A staggering 85% of healthcare costs in the U.S. are for the care of a chronic condition.
What’s more, recent data finds that nearly 40% of adults over 20 in the U.S. are either overweight or obese, which can lead to chronic illness and inflated medical spending.
As the U.S. population gets sicker and more overweight, the risk of insuring the average American goes up. And in turn, the higher the risk, the higher the cost of annual premiums.
Data from the Kaiser Family Foundation (KFF) shows between 2011 and 2021, the average premiums for family coverage rose from $15,073 to $22,221—that’s an increase of 47.4%.
3. The newer the tech, the more expensive
Medical advances can improve our health and extend our life, but they also add to the cost of health insurance and the overutilization of expensive technology.
According to a study by the Journal of the American Medical Association (JAMA), Americans tend to associate more advanced technology and newer procedures with better care, even if there’s little to no evidence to prove that they’re more effective.
This assumption leads both patients and doctors to demand the newest, and often most expensive, treatments and technology available.
4. Many Americans don’t choose their own healthcare plan
Data from the KFF finds that roughly 49% of the U.S. population gets their insurance through their employer. That means nearly half of Americans don’t make any actual consumer decisions about the cost of their insurance because their employer already determined it.
Organizations have an incentive to purchase more expensive health insurance plans because the amount employers pay toward coverage is tax-deductible for the organization and tax-exempt to the employee. In addition, low deductibles or small office co-payments can encourage overuse of care, driving both demand and cost.
5. There’s a lack of information about medical care and its costs
Despite a wealth of information at our fingertips online, there’s no uniform or quick way to understand treatment options and their costs. We would never buy a car without comparing models, features, gas mileage, out-of-pocket cost, and payment options—but yet, this is how we buy healthcare.
Kaiser Health News (KHN) reports that even when evidence shows a treatment isn’t effective or is potentially harmful, it takes too long for that information to become readily known, accepted, and change how doctors practice or what patients demand.
And in too many cases, even when hospitals make their service prices available, they are challenging to navigate and understand. To mitigate this lack of transparency, Congress passed the No Surprises Act in January 2022.
The Act aims to reduce surprise medical bills under group and individual health insurance plans and create better pricing transparency to improve the patient experience.
6. Hospitals and providers are well-positioned to demand higher prices
According to the Center for Studying Health System Change, mergers and partnerships between medical providers and insurers is one of the more prominent trends in America’s current healthcare system.
Increased provider consolidation has decreased individual market competition, in which lower prices, improved productivity, and innovation could have occurred. Without this competition, these near-monopolies created in an individual market have both providers and insurers in a position to drive up their prices unopposed.
For example, a study done by the American Journal of Managed Care found that hospitals in concentrated markets could charge considerably higher prices for the same procedures offered by hospitals in competitive markets. Price increases often exceed 20% when mergers occur in concentrated markets. However, reviews found these cost increases didn’t improve healthcare quality.
7. Fear of malpractice lawsuits
Frequently called “defensive medicine,” some doctors will prescribe unnecessary tests or treatment out of fear of facing a lawsuit. The cost for these treatments add up over time—a study has shown that the average cost of defensive medicine is around $100 to $180 billion each year.
This is no surprise given that our current regulatory system is structured to support the fee-for-service model of healthcare delivery and payment. The Commonwealth Fund reports that the fear that healthcare providers will withhold important services to stay under budget is a more significant concern to Americans than the overutilization of services.
How an integrated HRA can alleviate rising premium costs
As health spending continues to climb, there’s never been a better time to explore a health reimbursement arrangement (HRA)—an easy way to lower your healthcare premium and out-of-pocket costs by getting qualified expenses reimbursed through your employer.
HRAs help employers better control their health benefits budget, avoid unexpected rate increases, create customized plan designs, and give their employees more control over healthcare choices.
Not all employers want to let go of their group health plan. Luckily, there is an HRA that supplements employer-sponsored health insurance—the integrated HRA.
Integrated HRAs are for employers of any size looking to boost their group health insurance policy by offering a reimbursable, unlimited allowance amount to employees for medical expenses that aren’t fully covered by their plan.
Integrated HRAs work with any employer-sponsored health plan. But by incorporating a high-deductible health plan (HDHP) with an integrated HRA, employers can offset annual rate hikes and health plan premiums. Employers and employees alike can save more money on their monthly premium with an HDHP, and the HRA will cover out-of-pocket costs and medical services that the lower-tier health plan may not cover.
The integrated HRA that PeopleKeep offers on their HRA administration platform is called a group coverage HRA (GCHRA). With PeopleKeep, employers can quickly and easily sign up for a GCHRA and start offering their new benefit right away.
Even better, PeopleKeep’s team of experts will handle HRA compliance, review and store documents, and provide top customer support so employers can focus on running their business and taking care of their employees.
While there’s no single reason to blame for rising healthcare costs or a premium hike, understanding a few of the factors can help keep you informed and aware of your options so you can make educated health insurance decisions.
If you’re an employer with a group health insurance plan, an integrated HRA is an excellent way to keep your costs low while offering your employees an affordable health benefit with greater coverage. Get an integrated HRA through PeopleKeep by scheduling a call with a personalized benefits advisor today.
This article was originally published on May 9, 2014. It was last updated on May 16, 2022.