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Healthcare benefits are getting more expensive for everyone involved. Here are ten ways to overcome these ever-rising costs.

It’s no secret that healthcare in the United States is costly, both for individuals and businesses. Unfortunately, over the past several years, the trend has been a continuous increase in healthcare costs — and it looks like this trend will continue into the foreseeable future.

Still, you may wonder: “Why is healthcare so expensive? What are the factors in play?” Here are ten key reasons why healthcare is so expensive for American companies today.

1. Medical Providers Get Paid Based on Quantity, Not Quality

The reality is, most insurance companies — including Medicare — reimburse doctors, hospitals, and other providers based on the number of tests they run and procedures they perform. As a result, many medical providers have no qualms about ordering redundant or duplicate tests or setting up one follow-up appointment after another even when they’re not strictly necessary.

2. The U.S. Population is Growing Older

According to the U.S. Census Bureau, 21% of the American population will be age 65 or older by 2030. Of course, this number will include all living Baby Boomers and those born in the late 1960s.

As the population gets older, healthcare costs will likely rise even higher due to a significant increase in Medicare enrollment and medical providers working with patients with more complicated, chronic health issues.

3. Americans are Becoming More Unhealthy

Unhealthy Living

Research indicates that as much as 50% of the U.S. population struggles with at least one chronic condition — and the majority of healthcare costs (85%) involve care for patients with such chronic conditions.

For example, a recent JAMA study points to diabetes as the medical condition responsible for the highest spike in healthcare spending over the course of the study. The increased cost of diabetes medication alone made up $44.4 billion out of the $64.4 billion increase in healthcare costs related to diabetes care and management.

Other common medical conditions in the United States include asthma, obesity, and heart disease. The prevalence of these and other chronic conditions continue to drive healthcare costs up, with average annual premiums for family coverage rising by a whopping 37% between 2015 and 2020, according to a report from the Kaiser Family Foundation.

4. Technological Advances = Higher Costs

Cutting-edge technology can play a crucial role in providing high-quality care for patients coping with chronic and acute medical conditions. On the other hand, the newer the technology, the more expensive it is for medical providers to purchase equipment, train staff on how to use it, and implement it inpatient procedures.

At the same time, some technological advances don’t result in significantly better outcomes for patients. Still, patients and doctors alike may demand the latest and greatest for their treatments, reasoning that the newer the technology, the better it must be.

5. Drug costs are on the Rise

Drugs cost continue to rise and outpace inflation. According to The Centers for Medicare and Medicaid Services, U.S. spending on prescription drugs will continue to climb from $1,025 per capita In 2017 to $1,635 per capita by 2027, increasing 60 percent. That total includes both public and private spending, meaning it consists of both out-of-pocket costs by Americans and expenses borne by insurance companies and government programs like Medicare.

Cost of HealthcareOne reason for the rise in prescription drug prices is the lack of competition resulting from the U.S. patent system for brand-name drugs, which gives the manufacturer monopolistic control over a given market, allowing them to set their price. Analysis by IQVIA shows that while brand-name drugs only account for 10 percent of the prescription drug market, spending on such drugs accounts for almost 80 percent of the total prescription drug cost.

6. Many Americans Receive Healthcare Plans Through Their Employer

In fact, almost half of the U.S. population is on an employer-sponsored plan. What this means in practice is that many Americans never make any truly informed decisions about the cost of their healthcare plan — or even understand what’s actually covered under the terms of their policy.

In addition, businesses have an incentive to opt into more expensive healthcare plans since what they pay toward coverage is considered tax-deductible. Combine this factor with low plan deductibles and negligible co-payments for office visits, and it’s easy to see how the overuse of care by employees can drive up demand and (ultimately) cost.

7. Taxes are Built into Health Insurance Premiums

Health insurance companies are not exempt from paying taxes. In fact, some insurers pay an effective tax rate north of 30%.

Even though the federal Health Insurance Tax (HIT) was repealed in 2019, many legislators are advocating for tax increases on insurers in their respective states. Not surprisingly, any tax burdens shouldered by insurance companies are typically rolled into the premiums that end users pay.

8. There’s a Lack of Transparency Around Medical Care and Its Costs

In many cases, it is difficult for an individual to accurately compare one treatment option with another in terms of effectiveness and cost. In the same way, it’s often highly frustrating for end consumers to compare healthcare plans with one another. For example, policy coverage, limitations and exceptions to that coverage, and other vital information are covered in a sea of legal and administrative jargon.

Moreover, patients often have no idea what their medical providers will charge them for a specific procedure. When hospitals do make their service prices public knowledge, they use medical billing codes that only healthcare professionals can decipher and read. In the end, most patients feel pressure to pay whatever the provider charges them, whether it’s reasonable or not.

9. There’s Less Competition in the Healthcare Industry Than Ever Before

Mergers and partnerships between both healthcare providers and insurers have become a major trend in the United States. As doctors and hospitals are consolidated under a few “mega-networks,” there’s a corresponding decrease in market competition — which means that providers can raise their service prices with minimal repercussions.

This is especially true of hospitals that monopolize regional markets. They are able to charge significantly higher prices than their counterparts that operate in more competitive areas — up to 25% more for certain procedures, according to one study.

10. Medical Providers are Afraid of Malpractice Lawsuits

Lawsuits

A 2014 study by JAMA estimated that “defensive medicine” — unnecessary tests or procedures prescribed by doctors out of fear of being sued — results in $46 billion being wasted every year. These “sunk costs” also play their part in higher healthcare premiums throughout the industry, and, of course, individual and corporate consumers have to bear the brunt of these costs.

In summary, many factors contribute to rising healthcare costs in the United States — and those costs will no doubt continue to go up in the future. However, you can still minimize costs by exploring your healthcare options and choosing the right plan for your business.

Reach out to our team of experts at Orbital Advisors today to learn more.