Why Is Health Care So Expensive?

In Newsletter Content by Brandon St. Clair

Understanding all the reasons for rising costs in health care are very complex and would take pages of explanation to outline. Here are a couple basic factors to look at in order to get a picture of what’s going on with the ever-increasing health insurance costs. It’s not as simple as saying health insurance companies are greedy and heartless organizations, only looking to profit their investors. But there is a balance of serving the public with the necessary financial services and staying in business to maintain staff and investors. There may even be a few steps to contain them.

Let’s look at one of the factors pushing health insurance costs up, and then talk about some ways to fit this vital coverage into your budget.

In 2010, President Barack Obama signed into law a little something known as the Patient Protection and Affordable Care Act (ACA for short). It took a few years to phase everything in, but by 2014 most of the main parts of the law were in force. The purpose of the new law was to help as many Americans as possible to have access to health insurance, many for the first time in their lives.

The results of the law were mixed—and are still heavily debated. On the plus side, millions of people were newly covered with health insurance plans. That much is clear, since the law required every health insurance company in America to accept anyone as an insured, regardless of their preexisting conditions. The government also has joined into subsidize premiums for those who qualified financially for the assistance.

But the bigger picture is with the part where the math kicks in. Traditionally, health insurance premiums were lower for customers who were young and healthy, but higher for those who were older or with preexisting conditions, which makes sense in terms of the higher cost to cover someone who has higher health care claims. But when the ACA became law, it stopped insurance companies from charging higher premiums to customers with preexisting conditions. Companies were now required to offer the same premiums to a person with a history of cancer or heart attacks as they would to someone in perfect health with no history of illness.

At that point, two big changes hit insurance companies at once, they had to accept absolutely anyone who applied for health insurance. This instantly drove up the number of people eligible for service in their networks. They had to charge everyone in a uniform way, regardless of how much cost any person or group represented in claims for the companies.

This had an immediate outcome that was a pain in everyone’s assets. Insurance companies had to pay out a lot more per person covered. If only it was possible for those companies to eat the new costs instead of passing them on to their customers. Sadly, that’s not actually how business works. Businesses—even insurance companies—must turn a profit to stay open.

Insurance companies had two options, go out of business completely, or raise their prices. When you look at it that way, it’s not shocking that we all saw a huge increase in across-the-board health insurance premiums.

The ACA is only one piece of the puzzle for the reason health insurance is so expensive in the U.S.—but it’s a significant factor, any way you look at it.

Another factor sending U.S. health care costs higher and higher is a host of administrative costs. Overall, the health care system spends hundreds of billions of dollars annually on this expense alone. And, you’d better believe those costs have an impact on insurance premiums.

Administrative costs account for anywhere from 15–30% of overall health care spending, studies find. This includes items like medical billing, hospital administration, scheduling patient appointments, and insurance management.

Many hospitals have more billing specialists on staff than they have beds for patients.

You may hear in the news that other socialized countries have lower administrative costs, but the reality is that they lean on the government to get involved and simply charge more taxes to administer the cost of health care.

The structure of health care and how it’s provided in the U.S. is more complex than what’s found in other countries. However, due to the entrepreneurial environment in the U.S., medical advancements have led the world in care. Unfortunately, it comes as a price.

Prescription drug prices have also played a large role with health insurance costs. Thankfully, recent regulatory changes in the pharmaceutical industry have helped to slow the rise in prescription prices, but they’re still going up. One quick way to help contain these costs for yourself, no matter your insurance coverage, is to opt for generic medications. Mostly they’re the same as name brand and are often significantly less cost.

So, what can we do about the escalating costs. Your grandmother probably told you, “An ounce of prevention is worth a pound of cure.” And that proverb has never seemed truer than it does today. Although we all have health setbacks in life, not all diseases or injuries are a result of congenital conditions or random bad luck. Often health problems arise from lifestyle and that can play a huge role in making health care more expensive everywhere.

Painful as it might be to consider, poor diet and lack of exercise contribute in a big way to many of the costliest health problems, such as, Diabetes, Heart disease, Obesity, and Cancer.

Saving money is far from the only, or even the main, benefit of pursuing a healthy lifestyle! Being fit will absolutely benefit your budget, which is brilliant. But, it will also just make you happier and help you to steer clear of hospitals and doctors’ offices.