Why is Health Insurance So Expensive?
Naturally, there are a few factors that influence the cost of your health insurance. These factors include:
- Risk of obesity and chronic illnesses
- The insurer’s costs
- Amendments to the ACA – Affordable Care Act
- Costs of claims, such as treatment and healthcare costs
- Lack of enough competition
- High costs of drugs
Most of the factors highlighted above are out of our direct control, so smart choices about your insurance are crucial. Below are reasons why healthcare insurance is astonishingly high.
Rising Costs of Treatment and Healthcare in General
The most straightforward answer that explains why health insurance is costly is because healthcare is costly. New technologies and advanced methods of treatments are costly, but even basic preventive care – regular checkups, screenings, and testing – can also be expensive. For example, the price of pneumococcal vaccination drugs has increased by over 50 percent since 2010.
Risk of Obesity and Chronic Illness
There is a strong link between changes in lifestyle and an increase in healthcare costs. Recently, chronic diseases have been rising, and they are not expected to slow down soon. Most of us must have interacted with a family member or a friend that has had treatment for lifestyle conditions. At the moment, lifestyle diseases are responsible for about 85 percent of all healthcare costs in the US. For example, the expenses related to treating diabetes patients have increased from 174 billion US dollars to 327 billion US dollars in the last ten years. The high costs associated with treating obesity and chronic diseases will continue to grow, and it will be shared by all insurance consumers – not just the affected patients.
Amendments to the Affordable Care Act
Changes to the ACA – both official modifications and proposed changes – have significantly destabilized the industry. Such changes might contribute to increased prices for insurance consumers.
Official amendments include:
- The expansion of health plans
- Suspension of risk adjustment payments
- Changes in the individual mandate tax
- Removal of duration limits
One concern with the ACA was that only sick patients would buy insurance cover, thus increasing applicable insurance premiums.
The Insurer’s Operating Costs
Once you pay your premiums, you are not only paying for all costs related to the medication and services you receive but also the insurer’s operating costs, such as abuse monitoring, fraud, customer services, employee education and training, regulatory fees and licensing, administration, and technology. However, such costs have been reduced since the inauguration of the Affordable Care Act due to two reasons:
- Caps imposed on the sector by the ACA: 15 percent for individual insurers and 20 percent for group insurance providers.
- A significant reduction in costs of insurance since medical plans do not determine applicable rates based on medical history and health.
The caps are set in stone to encourage insurance providers to find efficiency.
Lack of Enough Competition and Few Plan Options
Having choices means that you will have more control over how much you will pay for your health insurance cover. Failures of many insurance companies, exists from the market, and mergers mean that many people have limited options for insurance cover. Numerous studies have indicated that few insurance providers lead to high premiums for consumers and low payments for medical practitioners.
High Costs of Drugs
A short trip to the nearest pharmacy can give you a life-threatening shock. The constant upsurge of drug prices is quickly outpacing all other departments of healthcare spending. Americans might have spent about 535 billion US dollars on drugs in 2018, and whooping 50 percent increase since 2010. If that increase was not challenging enough for consumers and insurers, drug companies, at the beginning of the year, announced hikes in prices for more than one thousand prescription drugs. The medications currently make up about 17 percent of general healthcare expenses.
The situation is, however, caused by governmental regulations. These regulations enable manufacturers to circumvent competitive market forces. The manufacturers can thus charge surprisingly high prices for prescription drugs due to market exclusivity guidelines. The rules are meant to enable the manufacturers to earn back the initial capital spent on development and research. For instance, a prescription drug might have about 12 years of market exclusivity. During this period, no low-cost version of that drug should be produced or sold. The 12 year period can also be extended through evergreening – the drug companies can renew their market exclusivity period by coming up with a new version of the same drug. Drug companies can easily get away with this behavior because Medicaid and Medicaid – the largest health insurance in the country – are not allowed to negotiate prices by federal regulations. Even though the ACA had many regulations for insurance providers, it did not touch the pharmaceutical industry, which meant that the consumers did not enjoy protection from the makers.
How is US Fairing?
Healthcare in the United States might be about twice as costly as it is in other developed countries. To put it into context, if the three trillion US dollar healthcare division were to be ranked as a country, the division would rank as the fifth-largest economy in the world. The cost of this massive monetary burden on the American people due to high premiums, lost wages, out-of-pocket expenses, and taxes is more than eight thousand US dollars.
Do not, however, let the numbers fool you: even with all this financial might being pumped into the sector, the World Health Organization positioned the United States at number 37 worldwide in healthcare systems. The Commonwealth Fund, on the other hand, ranked the United States last among industrialized countries in healthcare. Such statistics only bring one concern to light: why is the United States pumping so much money into healthcare and not appearing to do well as compared to other developed countries?
