10 Reasons Healthcare Costs Will Keep Rising

The trend of high healthcare costs in the United States is poised to continue even in the face of Affordable Care Act. The primary reasons for increasing health care costs are the use of healthcare and the price for medical services and drugs. But apart from that, there are several other factors that are expected to keep the cost of healthcare soaring and less than affordable.

1. Rising medical costs

A crucial factor in the increasing cost of health insurance is the persistent rise in medical costs that outpace inflation. Growth in economy equates to increase in the prices of goods, and this includes healthcare. While the growth rate of healthcare costs is slower compared to the pace a decade ago, the inflation overall remains low. As a matter of fact, healthcare costs rise much faster than inflation. The Bureau of Labor Statistics reports that healthcare costs in 2015 increased almost 5% while economic growth altogether rose barely 2.4%.

2. Increasing health issues and aging

A growing number of Americans is developing one or more chronic conditions that include heart disease and diabetes. Furthermore, two-thirds of adults are either obese or overweight. These health conditions result to chronic illness and eventually to inflated medical expenses. The aging population is another factor that is expected to affect healthcare costs. As the percentage of seniors over 65 grows, there is an expected growth in their population of about 13% currently to nearly 20% after 2030.

3. Health conditions of the previously uninsured

Before the Affordable Care Act (ACA), people with pre-existing illnesses were turned down and went with no health insurance for several years. Through the ACA, these individuals were able to obtain health insurance on the exchange. Covering their claims, however, is costly for insurers. In order to balance the costs of insuring them, the price of insurance has to be inflated.

4. Doctor’s fees

Doctor’s fees account for around 20% of total healthcare costs in the U.S. Doctors are also highly compensated when compared with other professionals in the country. The reason is that they spend more on their medical education and malpractice insurance. Furthermore, they have higher office overhead.

5.  Malpractice costs

Malpractice insurance premiums paid by physicians, healthcare organizations, and manufacturers of medical drugs and devices directly cause a rise in healthcare costs. The premiums cover claim settlements on top of malpractice insurance company overhead and earnings. These premiums are eventually paid from healthcare profits.

6. Growth in specialty care services

An increase in specialty care has been observed and it has been attributed to a decline in the number of primary care doctors and increased patient preference to consult a specialist. Compared with primary care, specialty care is typically more expensive and often requires more testing, particularly when less common findings are involved.

7. Excessive administrative costs

An estimated 20% to over 30% is spent on healthcare administration. Majority of the administrative costs come from private insurance, with most of the spending originating from marketing and underwriting, processes that do not have an effect on healthcare. Additionally, having several private insurance plans in the same geographic location results to higher costs for healthcare provider expenses due to complex and lengthy processing.

8. Decreased insurer competition

Another reason why healthcare costs are set to further escalate is the consolidation of health insurance companies. When health insurance companies merge or close down, cost competition decreases, thereby, increasing costs.

9. Increased drug costs

The development of new drugs has also resulted to the soaring costs of healthcare goods and services. Developing a new drug can cost in the region of $1 billion and this causes a reduction in the economic incentive to develop drugs with lower profit potentials. Likewise, the intensive marketing of new drugs to physicians and consumers has been regarded as a reason for the overuse of expensive new drugs.

10. Issues in cost transparency

Cost transparency has always been a problem despite the abundance of information that can be easily accessed via medical journals and the Internet. Without this transparency, arriving at genuinely informed decisions is tremendously difficult for consumers, regardless of how savvy they may be when it comes to healthcare.

Stephanie L

Stephanie Lynch is a freelance writer who resides in Gilbert, Arizona, with her two sons and husband.

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