Why Health Care Costs Are Rising (And What You Can Do to Protect Yourself)

Rising Costs

One of the big stories of the past decade is the nearly unsustainable increase in the cost of health care.  A study by Harvard Medical School researchers found that as many as 60% of people who file for bankruptcy do so in part because of unmanageable debt from medical bills.

In fact, data shows that average health care costs per person have practically doubled every ten years since 1980:

This kind of rapid growth in health care costs is hard for many people, especially when economic conditions are as difficult as they are right now.  If you lose a job or have your wages reduced and then suddenly have to pay for unexpected medical procedures or treatments, odds are you will quickly find yourself in debt — by hundreds or thousands of dollars.

Even if you don’t have any unexpected health costs, your monthly health insurance premiums alone might be enough to put you in debt these days.  The graph below was compiled using data from the Kaiser Family Foundation’s “Survey of Employer Sponsored Health Benefits, 2001-2008,” and shows how health care costs have risen much faster than wages or inflation in recent years:

health care costs rising

Looking for Explanations

So what’s causing this trend?  To answer that, it helps to look at where the majority of health care spending goes.  This is data from 2008:

Hospital care:  31%
Physician/clinical services:  21%
Rx Drugs:  10%
Investment:  7%
Program administration:  7%
Nursing home care:  6%
Dental:  4%
Home health:  3%
Other:  12%

So clearly hospital care and physician services are the two biggest categories of spending.  But to understand why costs are increasing, we need to dig even deeper.

One of the likely causes of rising costs is that Americans are living longer than they were even 50 years ago.  As a society, we’ve gotten better at managing certain chronic diseases and improving health outcomes so that people can live longer.  These are certainly good things, but they also mean that on average we’re spending more than we used to.  It’s estimated that chronic disease treatments account for 75% of our health care spending nationwide.

Another factor that is probably contributing to rising costs is the constant unveiling of new medical technologies and new prescription drugs.  In many cases these advancements help save lives or offer better solutions to complicated health problems, and are therefore cause for celebration.  But the companies who make these drugs and state-of-the-art technologies charge what often seem to be exorbitant prices so that they can recoup their research and development costs.  Since the insurance companies end up having to pay the bulk of those costs, they pass the increase on to consumers via higher monthly premiums.

These are certainly not the only two factors.  Others include the aging of the Baby Boomer generation and the increasing complexity of administrating insurance programs.

What You Can Do

1.  Know the details of your particular health coverage — including information about deductibles, co-pays, and what is covered under your plan.  (A new service called CakeHealth just launched, which intends to help people access this kind of information more easily).

2.  Use the appropriate form of care.  Costs for a specific medical procedure can vary greatly depending on whether it’s done in an Emergency Room, a doctor’s office, or an urgent care facility.  In general your doctor’s office is the right place to go for medical problems that are not urgent.

3.  Compare prices.  This used to be nearly impossible, but it’s becoming more and more common to compare prices for health care services.  A New York Times article last year profiled a company called Castlight that makes it possible to see a comparison of prices for specific medical treatments like colonoscopies or blood tests.  There are also websites that allow you to find the best price for a particular prescription drug.

4.  Make sure you get the right insurance.  It can be tempting to get a policy that has low premiums and low deductibles, but such plans often limit the amount that you can claim for any one medical incident — which means that if you have an unexpected accident or disease, medical bills in the tens of thousands of dollars could become a reality.

5.  Last… and most importantly, take care of your body!  By giving it the things it needs (like good nutrition, exercise, hydration, and plenty of sleep) and by avoiding things that do serious damage in the long-run (like smoking cigarettes, eating junk food, etc.) you can significantly cut down on your medical expenses over the course of your life — not to mention feeling better.

What are your biggest health care costs?  Is health care a big chunk of your monthly budget?  Share you experiences with us on Facebook or Twitter, or in the comments below.  We enjoying hearing from you.

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