May 27th, 2009 – An interesting new report from the Wellpoint Institute for Health Care Knowledge was released this week. It helps to dispel the myth that health insurance carrier profits are the culprit for rising health insurance premiums. The report draws on reputable sources like the Kaiser Family Foundation, the Robert Wood Johnson Foundation, a study from Pricewaterhouse Coopers and the Congressional Budget Office.
Interestingly, the report shows that aging Americans and health insurer profits have little impact on increasing health insurance premiums. In fact, for every dollar spent on health care services, only 3 cents goes to health insurance carrier profit, which is a lower profit margin auto insurance, home insurance, life insurance and many other service providers.
So, what on earth is making our premiums jump up year after year, outpacing the annual inflation rate and wage growth?
The first cost driver is medical technology. America loves new technology and doctors and hospitals are no exception. When they buy new technology they have to use it in order to pay for it. So that means that they are going the order the use of that machine or test, whenever remotely reasonable.
Also, tests are often ordered as doctors practice defensive medicine. This means they need to order any and all tests to cover themselves in the event of a unforeseen problem that results in a lawsuit. People generally want doctors or hospitals to take every possible pre-caution when treating their loved one, so this isn’t necessarily bad. However, it is costly.
Inflation. We are all used to seeing the price of bread and milk rise gradually over time, but prices for medical services rise at a rate much faster than any of the other sectors in the economy. Rising costs for medical services directly translate into rising health insurance premiums.
Paying for people covered by Medicare, Medicaid and for the uninsured is another serious cost driver. People covered by Medicare and Medicaid have those services paid for at low contracted rates. In fact, the rates are so low that the health services providers charge more for patients with health insurance to make up for that. Same thing with the uninsured who don’t pay their bills. When the uninsured stiff the hospital or ER, they wind up with bad credit, but you wind up with higher health insurance premiums.
Finally, the American lifestyle is also to blame for rising health insurance premiums. Americans are too obese and don’t get enough exercise. This causes expensive diseases like heart disease and diabetes with huge costs. So let’s all get outside, enjoy Colorado and eat a healthier diet. Not only will it help keep premiums down, but you’ll be healthier, happier and maybe even a bit wealthier.
