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What makes health insurance rates increase?

young woman wonders about health insurance increasesHealth insurance rates are based on the costs of necessary and needful medical services, prescriptions and other products that the insurance is designed to cover. Premium rates are also based on the likelihood or risk that the insurance company will have to pay for these products and services on behalf of their subscribers.

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As the costs for the services of doctors, hospitals, and other practitioners go up, so do the rates for health insurance policies.

What are the effects of increasing insurance rates?

Cash-strapped employers are being forced to pass a larger and larger share of insurance costs to their employees.

Older workers will be more likely to put off retirement or they will at least maintain part-time work to help offset their increasing medical expenses.

What can I do to combat increasing health insurance rates?

Employees respond to increased costs by cutting down on medical services or switching to a less expensive program such as a high deductible policy. Employees may also take advantage of health savings accounts, HSAs, which allow employees to save for out-of-pocket medical expenses in tax-free or tax-deferred bank accounts.

How much has the cost of health insurance gone up in recent years?

According to government statistics, during the years between 1999 and 2008, the costs of health insurance premiums for typical employer group programs rose a staggering 131%! By 2008, the total U.S. expenditures for healthcare exceeded 2.3 trillion dollars, three times the amount spent in 1990, and more than eight times the monies expended in 1980 for the same services.

Americans spend more per capita on healthcare than any other developed nation, more than $7,600 for every man, woman and child in the United States. This sum accounts for over 16% of the entire U.S. GDP (Gross Domestic Product). Wages have simply not been able to keep up with escalating healthcare rates.

Spending for government-sponsored programs, Medicare and Medicaid, has also increased during this period, though not as quickly as private insurance programs. Recent legislative changes sponsored by the Obama Administration have tried to deal with escalating healthcare costs, but have met with only limited success.

Am I the only one who can’t afford my medical insurance?

As the U.S. economy tries to pull out of the recent recession, more and more American families, crippled by the loss of jobs and subsequent decrease in income and benefits have had to turn to public health programs, such as Medicaid.

Many more underemployed or unemployed citizens have simply dropped off insurance rolls, not qualifying for government aid, but unable to pay for private health coverage.

What are the causes for soaring medical costs?

While Americans can expect to live many years longer than their forbearers of a generation ago, these extra years are often filled with doctor’s appointments, hospital stays and large prescription drug bills. Advances in healthcare have helped prolong our lives, but the costs for these services will continue to rise, even as the demand for healthcare increases.

The aging U.S. population places a great burden on a healthcare system already struggling to keep up with the demand for more and more services. The first members of the post-war baby boom generation are turning 65 this year, and this need for senior healthcare services will continue.

The treatment of chronic disease and the long-term care of older adults, by some estimates, account for more than 75% of the total annual expenditure for healthcare in the U.S.

Half of every dollar spent in the U.S. on health care is paid out to doctors, hospitals, and clinics.

However, as the healthcare system explodes, more and more funds are diverted for the administration and management of these programs. It is now estimated that over 7 cents of every U.S. health care dollar is spent for administrative costs.

Research and development leading to advances in medical technology and prescription drug treatments also account for a significant share of escalating healthcare costs.

What can be done to reverse this trend?

There are a number of things that can be done to stem rising costs. These include:

  • Increased use of information technology
  • More efficient delivery of medical services
  • Improved quality of services
  • Disease prevention
  • Continued efforts by government to regulate providers, eliminate waste and control costs
  • Consumer education
  • Changes in tax benefits for employers and employees, such as the creation of HSA and MSA accounts

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