Why are Healthcare Costs Rising in the U.S.?

The Reasons for Rising Healthcare Costs in the U.S.

Imagine, for a moment, walking into an electronics store 10-15 years ago. Items such as smartphones, flat-screen televisions and laptop computers (which were probably less efficient than today’s models) were likely two-three times as expensive as they are in the current market. Yet if you fell in the store, broke your leg, and had to be rushed to the hospital, you would have paid less for the care that you received then than you would for similar treatment today. ​

Why the diverging patterns? Electronics providers (as well as those in most other industries) will typically take their technology and/or products and improve them while also making them more affordable for consumers. The healthcare sector, on the other hand, is one of the few industries where the price for services rises as treatment methods improve. How are these cost increases felt? Well, if you’re an employer, they mean having to pay more for group healthcare benefits plans. If you’re a consumer, they make it more difficult to afford reliable medical insurance. 

Factors Influencing Healthcare Costs

What are the reasons behind these skyrocketing healthcare costs? There are many, each of which, while distinct and separate, directly influences the others to cause prices to rise. They include: 

• The fee-for-service reimbursement model: Healthcare providers, for the most part, operate in a system where they are paid for every test, study or surgical procedure they provide. This, in essence, gives them every incentive to overtreat patients in order to adequately recoup their costs. 

 

• High-priced medications and devices: Pharmacy companies and medical device manufacturers are putting much more money into marketing than they did in the past. That contributes to rising healthcare costs by them charging providers more for their products, while at the same time, incentivizing clinicians to use them. 

 

• Malpractice costs: Factors such undue influence from external parties (such as medication and supply companies) on a patient’s treatment help contribute to an increase in medical malpractice claims, which in turn, requires physicians to pay more in malpractice insurance. This rise in price as well as the added scrutiny doctors face has served to both deter people from seeking careers in healthcare and prompted many practicing physicians to retire early.  

 

• More patients seeking specialty treatment: The decrease in available family practice physicians has forced many to seek treatment from specialty providers. These doctors may have a greater tendency to perform tests and prescribe treatments that are both costly and often unnecessary to address common health issues. 

How Are Insurers Responding? 

Some health insurance companies have taken a proactive approach to addressing rising healthcare costs by focusing more on health management, offering consumers incentives such as lower premiums for healthy practices and high-deductible plans while ensuring providers complete reimbursement for services meant to keep patients out of the hospital, such as preventative visits and telephone consultations. For more information on plans employing such methods to keep costs low, contact us at (707) 823-3689, and subscribe to our blog.