It's no secret that health insurance costs are ridiculously high. Six states even claim average premiums for individual coverage of over $400 per month. However, that high number doesn't tell the full story.
Premiums are just part of the picture for health insurance costs. There are also out-of-pocket costs like deductibles, co-pays, and co-insurance. And families pay much higher costs than individuals do. The dynamics of health insurance in the U.S. are complicated. To help you understand better what's going on, let's examine what could be the most important health insurance chart you'll ever see.
The chart you need to see -- and understand
One company in the U.S. probably has more insight into health insurance cost trends than any other -- eHealth, Inc. (NASDAQ:EHTH). Founded in 1997, eHealth is the leading online marketplace for individual and family health insurance products in the U.S. The company offers more than 10,000 health insurance products online from over 180 health insurers.
For the last 10 years, eHealth has tracked what health insurance costs in the U.S. Here's a chart based on the company's data that shows what's going on with health insurance in one picture.
The most obvious thing that jumps out from this chart is that health insurance costs soared beginning in 2014. You probably can guess why. That's when Obamacare went into effect. However, there's much more shown in this chart that can help you better understand health insurance in the U.S.
Sum of the parts
Note that the chart stacks annual deductible costs on top of annual premium costs. This reflects something that everyone buying health insurance should understand: Don't buy health insurance only based on the premium. Lower premiums nearly always come with higher deductibles.
It's smart when making a purchase to look at what's called "total cost of ownership." For example, when you buy a car, finding out fuel mileage, auto insurance costs, and average maintenance costs for the car model can help you determine the overall cost for the car beyond the initial price you pay. This total cost of ownership idea also applies to buying health insurance.
If you and your family aren't likely to have significant medical costs, choosing a plan based on a low premium could make sense. However, if your family's medical costs tend to be relatively high -- or probably will be in the future, paying a higher premium to secure a lower deductible could be your better option.
Behind the huge increases
Looking back to the chart, you'll see that premiums shot up more than 50% in 2014 -- the first year for Obamacare's health insurance exchanges. The actual name of the law was the Affordable Care Act. So why did health insurance become less affordable?
The answer is complicated, as is often the case with massive government regulatory changes. Many Americans didn't feel the brunt of those huge premium increases because of federal subsidies. For them, health insurance did become more affordable. That wasn't the case for everyone, though. Lots of American families paid significantly more for insurance than they did before.
One of the biggest reasons why premiums soared was that Obamacare required a set of minimum benefits that all health insurance plans had to cover. These "essential health benefits" included ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services.
But the average deductible cost increased even more than premiums did -- an 84% year-over-year jump from 2013 to 2014. In one sense, this reflected a hidden price increase for health insurance. However, there was also an ulterior reason for higher deductibles. The more Americans have to pay out of their own pockets for healthcare, the more price-conscious they'll be. This, at least in theory, should lead to better control on the growth in total healthcare spending.
Why healthcare reform is needed
Those black curved lines above the bars on the chart highlight something else that's important to understand about the state of healthcare insurance in the country. Note that from 2008 through 2013, there's a slight downward curve. That indicates that the growth in total health insurance costs was slowing. However, beginning in 2014, the curve faces up. Healthcare costs aren't just increasing -- the rate of growth is increasing.
If costs continue to rise dramatically, it seems quite likely that more Americans will choose to forego health insurance altogether. Many are already taking that route. Some politicians propose moving to a single-payer system. Others want to introduce greater competition and less regulations. One way or the other, something must be done. The chart makes that abundantly clear.