9 Reasons Your Health Insurance Premium Is Skyrocketing

If you’re frustrated that your health insurance premiums are heading higher, you’re not alone. Health insurance costs are increasing far faster than inflation and millions of Americans are getting hit with double-digit increases. What’s to blame for the climbing costs? Here are nine reasons we’re paying more money than ever for our health insurance.

Ever wonder why countries like the United Kingdom pay less for healthcare than the United States? Here’s the answer: they insure everyone under one plan so that they can negotiate with hospitals, doctors, and drugmakers for the lowest price possible. Want to sell a drug in the United Kingdom? Then, you better be willing to cut a deal!

Unlike the U.K., the U.S. health insurance market is made up of many different public plans, such as Medicare, and private insurance companies, including UnitedHealth Group. Because membership is spread out across these players, no one individual insurer has the clout necessary to dictate healthcare prices.

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Consumers can shop by price when they’re buying clothes, cars, or electronics, but that’s not true for healthcare. Consumers are forced to enroll in whatever health insurance plan is offered through work or in their geographic market and they must pay whatever premium the insurer demands. Furthermore, there’s little price transparency for healthcare products and services, making it difficult for consumers to comparison shop. As a result, healthcare companies have little incentive to lower prices to win customers.

Most healthcare spending goes to hospitals, doctors, and drugmakers, but oftentimes, those payments aren’t made directly to the company or person providing the product or service. Instead, payments are made to companies operating in between the patient and their healthcare, such as drug distributors, including McKesson, and pharmacy benefit managers, such as Express Scripts. Because various third parties demand their own profit margin, they further increase healthcare costs and in turn, insurance premiums.  

Personalized and precision medicine is revolutionizing patient treatment, but they’re doing so at an eye-popping cost. In 2017 alone the FDA approved two game-changing cancer gene therapies that can cost more than $500,000, including hospital fees, and a gene therapy that can restore vision for some people at a cost of $850,000.

The approval of increasingly complex and expensive medicine has caused specialty drug spending to more than double since 2010 and according to IMSHealth, it may double again between 2015 and 2020. If that forecast is right, then pressure to increase insurance premiums to pay for these therapies will continue to mount.

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America is the land of the free, but sometimes that freedom results in behavior that leads to costly healthcare.

For example, despite the link between obesity and diabetes being well known, Americans continue to eat junk food and obesity rates continue to climb. Similarly, people still smoke cigarettes despite the highly-publicized risk of lung cancer. The cost of those behaviors is substantial. Insurers spend more per patient per year on diabetes than any other indication and they spend $170 billion annually caring for adults diagnosed with smoking related diseases. That spending suggests that insurance could be cheaper if we embraced healthier lifestyles. 

In the past, the health insurance mandate forced healthy Americans to enroll in plans, but a decision in December to reduce the penalty for going without insurance to $0 has got insurers questioning how many healthy Americans will continue paying their premiums.

If healthy invincibles forego health insurance, then insurers run the risk of failing to generate enough revenue to cover the cost of providing healthcare to their remaining members. Rather than risk losing money, insurers took a conservative approach and increased premiums across the board for 2018.

Until recently, the government reimbursed insurers that subsidized out-of-pocket healthcare costs, such as co-pays, for low income families. However, President Trump eliminated those cost-sharing reimbursements in October, leaving insurers on the hook. Rather than absorb those costs, insurers increased health insurance premiums to make up for any shortfall. 

ALSO READ: Cost-Sharing Reductions: What Are They, and Why It Matters That Trump Is Ending Them

A larger and longer-living insured population means healthcare demand is at all-time highs, but healthcare costs aren’t likely to fall unless the number of healthcare providers increases, too. According to the Association of American Medical Colleges, the U.S. may face a shortage of 90,000 physicians by 2025. If they’re right, then demand will continue outpacing supply, making it even more difficult for insurers to negotiate lower prices with hospitals and private practices.

There are a lot of problems with how data is interpreted and collected in healthcare and at least some blame can be laid at the feet of companies that design electronic health records software.

Instead of designing systems that can easily share data, big players sell systems that don’t play nicely with competitors. As a result, the absence of a universal, blockchain style system for tracking patient care and best practices contributes to unnecessary testing and overlapping (or worse, contradictory) treatments that increase healthcare costs.  Overall, it’s estimated that unnecessary, ineffective, or unwanted tests, treatments, drugs, or procedures account for between 10% to 30% of all healthcare spending. It’s hard to imagine that premiums will decline until we get that waste out of the system. 

Todd Campbell has no position in any of the stocks mentioned. The Motley Fool recommends McKesson and UnitedHealth Group. The Motley Fool has a disclosure policy.