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Friday, April 17, 2009

Why Is Health Insurance So Expensive?

In America, the health insurance plans are simply too expensive to be affordable to most people as it has become one of the largest monthly expenses. As a result, hundreds of thousands of people, including children are left without any adequate health insurance cover whatsoever. The National Coalition on Health Care has found that “nearly 46 million Americans, or 18 percent of the population under the age of 65, were without health insurance in 2007 according to the government data available.” It is alarming to note that “the percentage of people with employment-based health insurance has dropped from 70 percent in 1987 to 62 percent in 2007, the lowest level of employment-based insurance coverage in more than a decade.” Read - the highlights of the health insurance coverage in 2007. 

This is definitely a matter of serious concern for the government that requires them to make immediate and drastic changes in their health care policies to reduce the costs and make it more affordable to the public at large. But, why is health insurance so expensive? Let us take a look at some of the probable causes.

One of the primary reasons could be that the employers offering health insurance are no longer able to afford the same coverage due to the higher cost of premiums and are now seeking a higher percentage of part payment from the employees. The rising cost of health premiums has also resulted in the smaller employers not being able to offer health benefits to their employees at all. So, in effect more and more companies are taking the easier way out by hiring part-time or contract based employers as they are not eligible for health insurance. This means that the number of workers that are having access to employer-sponsored health insurance is decreasing gradually.

Take a look at these statistics provided by the NCHS for the years ranging from 1987-2004.

Ø Table 131 (page 1 of 2). Expenditures for health services and supplies and percent distribution, by type of payer: United States, selected years 1987–2005:

Ø Table 128 (page 1 of 3). Expenses for health care and prescribed medicine, by selected population characteristics: United States, selected years 1987–2004 :

If you take a look at the data in this chart from the years 1997-2004 covering all age groups eligible for health insurance and their respective cost per person, the mean annual expense per person has gone up from $2,597 to $3,879.

Ø Table 130. Out-of-pocket health care expenses among persons with medical expenses, by age: United States, selected years 1987–2004:

It is clearly evident from this data that the out-of-pocket health care expenses has increased from the year 1987-2004 and the number of people paying more than $1000+ has gone up from 13% - 20%.

Another obvious reason could be the high cost of medicines itself that raises the cost of health care and therefore health insurance premiums. Today, most of the hospitals have turned into big corporate industries that function as business modules and are profit based organizations. Their sole aim is to provide quality health care to those people who are now very much aware about their health care needs and demand quality care from hospitals as their right. Therefore, these hospitals end up spending a lot of money to provide the infra-structure, materials, resources, man-power etc, to increase the quality aspect of health care thereby increasing the cost to the insurer.

Now, let’s not forget that health insurance companies are businesses whose sole purpose is to make “profitable” money by providing a service. Therefore, it is but understandable that these companies would raise their premium rates in order to cater for all the overhead expenses like lawsuits and malpractices, for example, that it may have to account for in this day and age. Other factors to be considered are:

1. Administration costs : A huge load of paper work is involved in both government and private health insurance companies due to different rules and policies and different payouts in different states. A study conducted by researchers at the University of California at San Francisco in the year 2005 found that administrative costs were responsible for up 25% of the nation's health care spending.

2. Legal Concerns: The fear of malpractice and lawsuits results in the US physicians to order more diagnostic tests and investigations to be on the safer side. This results in an increase of the overall cost of health care.

3. Provider power: Since there is no single monopoly in the field of health insurance, the costs of health care are dependant upon the American hospitals, doctors, and other care providers, thereby being able to set higher prices than providers in other countries.

4. Supply: It has been found that the Americans typically consume more of the high-priced medical procedures over the course of their lives. However, there are very few hospitals and doctors who fall within the US per capita income than other industrialized countries where they have a universal health coverage that demands more of the basic health services that drives up their supply and ultimately lowers their cost.

Another aspect that the insurance companies have to deal with is the fact that most people tend to purchase health insurance only when they are sick or unhealthy, therefore resulting in large number of claims in relation to the number of people insured and causing the insurance companies a number of problems as they are unable to accumulate sufficient funds to meet those claims.

This is a major problem faced by the insurance companies, since they do not cover day-to-day expenses and only provide for “unexpected” or “emergency” health care. So, in effect, they actually want people to apply for health insurance in their healthy state. In that instance, more people would be paying their premiums without ever getting anything in return. This facilitates the insurance companies to collect sufficient money to pay for those claims of the small number of insurers who are unfortunate enough to need to make a claim. Now, most people think twice before using medical facilities and try to take care of their own health as far as possible, but if they had a medical insurance cover meeting a substantial part of their medical expenses, they would tend to abuse it by overusing the facilities.

If you are purchasing a health insurance policy then you need to account for the deductible” amount. The deductible amount in an insurance policy is the amount that you will have to pay out of your own pocket before the insurance company starts paying out any benefits. This amount is directly proportionate to your age and health at the time of taking the policy. Therefore, if you are young and healthy then the amount of premium to be paid as well as the deductible will be lesser as compared to an older person who has health risks. Thus, I would say that each person should carefully work out for himself the right age and amount of health insurance premium that he should pay to minimize expenses for himself in the long run and whether it would indeed be beneficial to him or not. The following link provides a listing of website addresses for some State Health Insurance Counseling and Assistance Programs (SHIPs) provides all the answers about managed health care and helps you to understand all the details about your new health plan choices and how to go about it.

Therefore, it goes without saying that the price of the health insurance will be raised in the event of any “pre-existing conditions” in a persons health. In many cases, the person with a pre-existing medical condition may not be able to get any coverage at all unless the person can prove that he has had continuous care for that condition during the time in which he had no insurance. Even if it is covered, it will cost more money.

Unfortunately, expensive health insurance premiums have become a fact of life for Americans and the only way to bring about any change in the scenario is probably by socializing the health care system. The Obama-Biden plan seems to provide some answers towards this issue.

** You may also be interested in reading this :- National Public Health Week 2009 to Focus on "Building the Foundation for a Healthy America" at these links:

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