Health insurance premiums have been increasing for years far beyond the typical cost increases observed in most other sectors (except college education – but that’s another story). Many have asked what drives health care costs? Recently, another summation of what’s going on with the cost of health care was released. Below is a link to a brochure from Anthem that deals with this question.
Several Notable Points
- In 2007, US health care costs were $2.2 Trillion.
- In 2010, these costs should come in around $2.6 Trillion.
- In 2018, costs are estimated to reach $4.4 Trillion.
In general, around 87% of premium dollars end up paying for health care costs. About 10% goes to claims adjudication, administrative costs, billing, marketing and government compliance. Remaining is about 3% for potential profit.
These statistics about insurer profits recently made their way into the media. The observation was made that – “…if you took the combined profits of the top ten health insurers nationwide and applied it to paying for health care costs, it would only cover the cost of health care in America for approximately two days.” A stark reality when compared with the political rhetoric we have heard about the allegedly evil and money grubbing private sector health insurers.
So if it’s not greedy health insurance profits driving up costs, why are the costs so high?
For years, I have said that the main reason is “…demand for better and better and more widely available health care services.” Ultimately, people want to live as long as they can, and they want a high quality of life. Anthem says part of the story is, “…more expensive technology, used more often.” Better tests, better training, better equipment – better outcomes. These increasingly desirable things all contribute to increasing costs.
Some impugn the US for having the highest costs for health care in the world. These critics are right about the costs being high. However, the value judgment attached to this criticism is flawed. Think of it this way, we also have the highest costs for laundry, dishwashing, lawn mowing, transportation, television, cell phones, hot water, food, housing, etc. For example, not everyone around the world has a hot water heater – but most would love to have one. Just because we have a more developed lifestyle (and therefore more costly) doesn’t mean we are necessarily doing something wrong. Yes, doing laundry on a rock by the river is technically cheaper than using a modern washer and dryer. However, most Americans would prefer to keep their washing machines.
Other Cost Drivers
Other elements to explain increasing health care costs include;
- Medical inflation.
- Cost shifting (i.e. when the government underpays for billed services through Workers Comp, Medicare, Medicaid and other government programs, the cost gets “shifted” to you, the paying customer).
- Government regulations
- Lifestyle (obesity, drug abuse, cigarette smoking, lousy diets, not enough exercise, etc.) and more.
Additional factors and some suggested potential remedies are listed in the attached article. To a certain degree, it is ironic how we are hearing more and more of these well established points only after the fact of the health care bill being passed. Recent surveys show 63% of Americans now favor repealing the health care bill. Can anything be done to change course and bring about more widely embraced reform?
The Battle Over Reform
Some states are moving forward with Constitutional challenges to push back against the new law. Here in Ohio there is a ballot initiative underway to amend the Ohio Constitution in order to preserve health care choice in the state. This is being carried out by a groundswell of everyday citizens (many are Tea Party members) who are circulating petitions statewide. Over 400,000 qualifying signatures from registered Ohio voters must be collected by the end of June. To learn more, visit: www.theohioproject.com
Here is a link to the Anthem brochure:
http://www.mccarthystevenot.com/wp-content/uploads/2010/05/27330-13583ANEENABS_5_10.pdf
