Why is Health Insurance So Expensive?

Why is Health Insurance So Expensive

One of the biggest expenses Americans have is healthcare costs. In fact, it accounts for 90% of spending, which can severely affect the budget. With the prices of medicine continuously increasing, unhealthy lifestyles, and the rise in chronic disease, insurers capitalize on the opportunity because it’s no secret – people need health insurance. 

What exactly is health insurance?

There are two main types of health insurance – private and public (government). Healthcare insurance covers a portion of the medical costs for the policyholder. How much coverage is provided depends on the policy, which could include dental, hospitalization, prescription medicine, and more. 

The cost of pharmaceutical drugs is about four times the cost of other developed countries. One of the reasons for this is that they are somewhat controlled by the government. In the U.S., the market controls the cost where supply and demand are real.

With healthcare reform on the rise, insurance is now offered to everyone, regardless of their age or situation. This is a step in the right direction. Affordable Care Act enrollment was put in place to provide insurance for as many people as possible. While this is advantageous for people who have never had health insurance, the buffer for insurance companies rose because the cost of premiums for someone perfectly healthy is now the same as someone who has a history of illness.

Main reasons for high health insurance

Insurance companies have raised their prices to accommodate the influx of people with preexisting conditions due to the ACA’s requirements. Again, it’s providing a service to individuals without going out of business. Here are a few additional factors:

  • Administrative
    The administrative costs involved with keeping everything in order, like hospital administration, medical billing, managing insurance policies, and scheduling appointments continue to rise. This expense is one of the biggest pieces of the puzzle. With such a complex system in place, layers of red tape, private insurance companies, and employers covering part or all the health insurance costs of their workers, it has a definitive impact on premiums.

    Having multiple systems in place instead of a centralized system means double or triple work for the people behind the scenes. Different types of insurance, separate rules, enrollment dates, varied tiers of coverage, and plans that may or may not include medicine, copays, coinsurance, and deductibles all play a role in driving up costs.
  • Prescription drugs
    Here we are again. Although there are some regulatory changes in place, this is a huge area of overspending for the U.S. when compared to other countries. With little to no regulation in place on pricing, private insurers can negotiate different prices while Medicare cannot.
  • Pay structures
    The amount a doctor or specialist in the United States makes is significantly higher than in other countries. Nurses also make more in their profession than in other countries. While there are ways for managed care plans to save costs, this is one of the reasons why health insurance premiums are so high.
  • Hospitals
    While hospitals are places where you can go and get medical treatment, they are also business entities designed to make money. In fact, 31% of the healthcare costs in the U.S. can be attributed to hospital care. Expenditures in hospitals grew to $1.27 trillion in 2020. Surgeries are more expensive than in other countries by thousands of dollars, but many hospitals are also in dire financial straits. That means the costs of running the hospital and administering quality care are passed directly to the patients and their insurers.
  • Varied pricing
    There is no across-the-board set pricing for medical services. Healthcare providers can charge what they want. Depending on the method of payment and location of the healthcare facility, prices can significantly differ. For instance, someone on private insurance or a government program may have a higher bill than someone paying out of pocket or on a payment plan.
  • Defensive medicine
    The hospitals and healthcare practitioners in the U.S. are consistently in a defensive mindset to avoid possible litigation. As a result, they order costly tests just in case as a preventive measure even if it’s not required. In the U.S., MRIs are about $1,420 but much lower in other developed countries. For someone sick in the U.S., it’s much more expensive than when in other countries.

    Taking proactive measures by regulating diet and adding exercise can help avoid a lot of the issues plaguing Americans like diabetes, heart disease, cancer, and obesity. This cuts down on the trips to the doctor but can also help in alleviating high premiums.

There are many components at play when evaluating the costs of health insurance premiums, especially when it comes to ensuring you have adequate coverage. The healthcare crisis continues to grow, as a lack of support from government officials prevents the government from playing a larger role in providing affordable health insurance and controlling healthcare costs. 

Doing research to make sure you have the best options for healthcare insurance makes a difference. While thinking about all these costs can have you worried, having health insurance is key. That’s why you need a trusted advocate that partners you with the right insurance company to find the best coverage at an affordable price.