Why Do Health Insurance Rates Go Up?
Americans, are you frustrated with your health insurance premiums going up again? Health care costs are constantly rising, but we’ve all been there and know it can be frustrating. If you’re feeling worn down about sky-rocketing health care costs and want to know how to ensure a healthy future for yourself and your loved ones, this post is for you.
This handy guide will help explain why rates go up so often in the first place, how much of an impact they could have on the economy, what some of the solutions are (ahem), and what experiments other countries have tried to keep their citizens healthier while also keeping their budgets in check.
The first thing to understand is that this question we’re trying to answer is a complex one. Like most simple answers, the real reason for rate increases is more complicated and not as well-understood. But let’s give it a shot anyway!
The main culprit in rising health insurance rates are two factors: the cost of healthcare and the price you have to pay as a consumer for getting that care. Let’s tackle each one separately:
The Cost of Healthcare
There are 3 primary reasons why healthcare gets more expensive over time: inflation, coverage expansions, and technological advancements. Although inflation is usually thought of as a bad thing, it actually does a lot of good for the economy. Let’s take a look at what drives healthcare costs:
1) Healthcare Costs Are Rising Due to Inflation
Inflation’s primary role is to make prices and wages increase over time. The general theory behind inflation is that the prices of all goods (in this case, healthcare services) go up over time due to increases in demand and disposable income–but that’s the short answer on why things cost more.
There are also two other ways that healthcare costs will rise over time: as more people get covered, and as coverage expands.
2) Healthcare Costs Are Rising Due to Coverage Expansions
The first way that healthcare costs will rise is when more people get covered. This is a point that proponents of Obamacare especially love to point out when criticizing the opposition. I have no doubt that this is true, but what they often fail to acknowledge is that this only applies to those who previously didn’t have any healthcare coverage. The rate hike applies for them, yes–but so does the benefits! What you first need to understand is why people are uninsured in the first place: in many cases, it’s because they couldn’t afford it.
What’s especially interesting to note is that the percentage of uninsured people continues to rise over time. This means that not only are more people being covered, but that they’re also getting more coverage along with their healthcare. The effects of this are felt by employers who have to pick up the tab for their employees and by individuals who will pay a higher premium for insurance in order to afford it.
3) Healthcare Costs Are Rising Due to Technological Advances in Care
The third way that healthcare costs will go up is through technological advances in healthcare. This is another point that proponents of Obamacare often overlook. Of course, it was a “technological advancement” in healthcare that increased the costs to begin with, and of course it will be one that continues to drive up the cost for years to come! What do we mean?
Well, medical advancements lead directly to new treatments and procedures. As new treatments and procedures are developed, more people want them, which means they’ll need insurance coverage for them. This leads to an increase in demand within the market–meaning people will have premiums that are higher than projected.
How Expanding Coverage Leads to Higher Rates
If the above points point to rising prices due to inflation and coverage expansions, then what are some of the solutions that could lead to lower health insurance rates? Well, let’s break down some of the possible scenarios that are being discussed in order to see how they would affect costs.
Universal Healthcare–A New Right for All?
“Universal healthcare” is a phrase we hear a lot these days. It basically means all Americans have access to the same level of care no matter what income bracket they live in. A lot of people like universal healthcare because it sounds like the right thing to do–it allows people to be free of the anxiety of not being able to get health care at all.
Well, “all” under this system would get care, but not necessarily the quality of care they’re used to getting. In essence, you could have a universal healthcare system that provides some services at a sub-par quality. The reason is that (i) people often don’t have access to non-essential services and (ii) there are other costs that get passed on to consumers for those services.
Let’s take a closer look:
1) People may not have access to non-essential services.
A universal healthcare system won’t necessarily cover all healthcare services, but will instead pick and choose based on what the government thinks is “essential” for you to have. In a study published by the Agency for Healthcare Research and Quality, some of the findings included:
– More than 2/3 of people with poor vision reported that they had not seen an eye doctor within the last year.
– Nearly half of people with chronic pain reported that they had not visited a doctor in the past year.
– Only 37% of people who were diagnosed with a mental illness were able to access professional help.
– About 1/4 of individuals with disabilities did not have access to public transportation, which made it difficult for them to go anywhere for healthcare. In other words, universal healthcare might not include access to care. If you don’t have the money or transportation to go get care, you’re out of luck.
2) There are other costs that get passed on to consumers for those services.
Conclusion: I’m not saying that universal healthcare would result in a lower quality of care, but it’s only going to be as good as the system can afford.
Privatization–More Options for Less Money?
Here’s another solution that I hear is being considered by some: privatizing healthcare. People like this idea because they want more options–and they think that if they get a private insurance policy, their costs will go down. The problem is that insurance companies usually do everything possible to keep premiums as low as possible.