Health Care Costs

Reasons for Rising Costs

Based on an analysis performed by PricewaterhouseCoopers for America’s Health Insurance Plans (AHIP) in 2008, premium increases in recent years have been comprised of several components:

• 46 percent due to general inflation
• 30 percent due to health care price increases in excess of inflation (due to reduced provider competition, cost-shifting from government programs and the uninsured, and higher-priced technologies)
• 25 percent due to increased utilization of services (driven by new treatments, aging, changes in lifestyle, more intensive diagnostic testing, and “defensive medicine”)

Health insurance premiums rose by 6.1 percent in 2007, and the percentage of increase has gradually declined since 2002, when the average was 13.9 percent. Premium increases are expected to be in the moderate range for the near term.

 Specific reasons for consistently high health care costs include:

• Aging Population
• Lifestyle
• Technological Advances
• Pharmaceutical Development and Utilization
• Cost of Hospital Care
• Government Mandates
• Cost-shifting from Underfunded Government Programs
• Consumer Demands
• Insulation of Consumers from Costs
• Market Power of Major Health Care Providers
• Uninsured Population
• Number of Younger, Healthier People Not Enrolled
• Litigation and Related “Defensive Medicine”

• Regulatory Requirements

A Common Concern

Although policymakers and industry officials are concerned about rising health care costs, they sometimes differ on the best way to effectively address the problem. Some believe that more regulation is the answer, while others assert that competition in the free market will resolve the issue. Still others are hopeful that “consumer-driven” health benefits may hold the key to keeping costs down by helping consumers in taking better care of themselves and, therefore, requiring less medical care.

>> PricewaterhouseCoopers' Report: The Factors Fueling Rising Health Care Costs 2008

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