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Why do Americans pay so much for health insurance?

Health Care and Health Insurance
by Josh Hammerquist
Officials seek federal relief on health insurance risk
Officials seek federal relief on health insurance risk

Any American with private health insurance has likely seen their costs rise sharply in the past several years, even as laws intended to slow the rate of premium increases have mostly been effective. Costs aren't rising as quickly today as they once did, but they're still rising faster than inflation in many cases, and that can leave even financially secure consumers in a tough situation. That may be especially true as employers continue to shift a large and ever-growing share of premiums and deductibles back onto their workers.

All of that adds up to the U.S. making the single biggest health care expenditure by any country by far, about $3.5 trillion in outlay per year as of 2017. On average, that breaks down to more than $10,700 per person, and constitutes close to 18% of the gross domestic product. Both those numbers are expected to continue growing over the next several years, TXCIN noted. To compound concerns about this expenditure, the nation's health outcomes across a number of categories are markedly worse than those in other industrialized countries, meaning the U.S. spends far more to get less bang for its health care buck.

Many factors at play
One of the biggest reasons for the stark rise in health care spending in recent years has been the aging population; as of 2017, about 57.6 million Americans were on Medicare, which is only available to people over the age of 65 - and that number should rise to nearly 74 million by 2026. Simply put, older people tend to be less healthy and require more - and often, more expensive - care than younger people. Americans today live far longer than they used to, but they also deal with far more chronic illnesses and other issues that increase their health care expenditures sharply.

Meanwhile, the fact is that the cost of care and products has risen sharply over the past few decades, especially as the complexity of services offered increases. From 1996 to 2013, health spending went up about 50% simply because care providers were both charging more for existing services and offering new ones to better handle health concerns.

The Peter G. Peterson Foundation recently determined the U.S. spends just under 3% of its GDP on Medicare, but by 2048, that number could just about double. Other issues, such as a lack of price transparency, increasing consolidation by insurers and care providers, utilization rates, regulation at the state and federal levels - and more - all play a role as well.

Employers' perspective
Because higher costs are generally pushing employers to shift more of the financial burden for health care onto their employees, it's perhaps important to note what companies generally see as the biggest issues they face. A Willis Towers Watson survey recently found 70% of employers worldwide felt their costs are rising because doctors recommended too many treatments or services. More than half also felt insured employees were overusing care, and more than a third felt people had poor health-related habits and/or didn't utilize preventive care enough.

Perhaps not surprisingly, American companies were most likely to have major expectations for their expenditures to increase in the next five years, driven mostly by predictions for higher costs for pharmacy (cited by 80%) and behavioral health services (68%). More than half were also concerned about hospital or inpatient cost increases, and slightly under 50% expressed concerns about higher costs for outpatient, maternity and dental care.

Some individuals drive spending significantly
Recent data from the Peterson-Kaiser Health System Tracker suggests another big reason for major increases in health spending is the amount of treatment needed to care for a relatively small number of individuals. Indeed, about half of all U.S. healthcare expenditure comes from treating just 5% of patients. Moreover, only 1.3% of people examined in this study accounted for close to 20% of all costs, with an average outlay of about $88,000 annually.

These people are almost universally those with chronic health issues - as opposed to those who experience a single health emergency. People in the latter group still cost large amounts of money: nearly $55,700, on average. Everyone else carries an average cost of about $5,900 per year. However, for those with persistent conditions, their inpatient costs were significantly lower than those who suffered a single emergency.

What does it get us?
The Peterson Foundation's data suggests a number of issues: While the average American spends more than $10,000 each on care - more than double the average of nations with comparable economic power - U.S. health outcomes are far worse than those cohort countries. Americans' average life expectancy tails toward the lower end of that group (ranking 28th of 36), as does infant mortality (35th of 38), unmanaged asthma (28th of 32), unmanaged diabetes (26th of 34) and so on.

In all, an estimated 30 cents of every dollar spent on health care in the U.S. goes toward services that are unnecessary, ineffective, wasteful or overly expensive.

With all this in mind, care providers and insurers may have significantly more work to do to ensure consumers understand the health care options available to them and why they pay what they do for coverage and treatment.

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