Why are Health Care Costs so High?

Issues & Policies

Missing from most of the health care reform proposals being made is the attempt to truly deal with the biggest reason many people don’t have health insurance coverage: the high cost of health care.

Fully 87% of all health insurance premiums are spent on the actual delivery of medical care—by far the most significant of all the complex factors driving the cost of health care, says PricewaterhouseCoopers. And health care costs keep rising—why? Here are some of the top reasons:

Government cost-shifting
Government continuously and significantly underfunds its health care programs (Medicare and Medicaid). As a result, individuals, employers and insurers are being forced to subsidize the government obligations on top of paying for their own coverage.

Unfortunately, Connecticut is one of the worst offenders. According to the legislative Program Review and Investigations Committee, Connecticut’s Medicaid program underfunds hospitals by almost 30%–a gap that shifts costs to individuals, employers and insurers by approximately the same percentage.

When state government fails to pay its portion of the health care bill and instead pushes it onto others, it throws off the entire health care system. In Connecticut, private individuals, employers and insurers are paying $300 million a year more than they should because of state government’s cost-shifting, says the Connecticut Hospital Association.

Government insurance mandates
For decades, lawmakers have been mandating insurance coverage for scores of special treatments and procedures. The problem is that these expensive government add-ons help some but significantly increase costs for everyone. In Connecticut, lawmakers have approved more than 50 of these mandates, increasing the cost of health insurance in the state by 20% to 50%.

Bearing much of the burden of these higher costs are small businesses. That’s because state mandates apply only to fully insured plans, and smaller businesses are more likely to be fully insured (as opposed to larger companies that have the resources to self-insure).

Poor health behavior (such as smoking and obesity)
Common sense says that the healthier you are, the less medical care you need, but Americans make behavioral and lifestyle choices that compromise their own health and well-being. Unhealthy behaviors have a big impact on the cost of care.

According to MedicalNewsToday.com, obesity alone increased the nation’s health care costs by $78.5 billion in 1998. And this figure grew to $147 billion in 2008, with the cost to treat obesity related conditions representing 12.9% of private insurance expenditures.

Combined with the cost of other unhealthy lifestyle choices (such as smoking and alcohol abuse), the impact on insurance costs is overwhelming.

More expensive (and expansive) technologies and treatments
While technology has the potential to reduce health care costs, many studies have found that more widespread use of newer more advanced and expensive technologies and treatment expansion has increased health care costs between 38% to 65% over the years.

Ultimately, lawmakers must tackle the cost of health insurance in order to address the issue of increasing health care coverage.



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