Why has the cost of private health insurance gotten so high? 

Health care costs continually rise every year but where the blame lies is unclear. Many people believe the blame lies with the doctors and hospitals or the insurance companies. There are other people who think the government is partly to blame for rising cost of private health insurance. The truth is that all three have a hand in it.

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Rising medical care costs have caused private health insurance companies to raise their rates in order to keep making a profit. There have been actions taken by the government to try and lower insurance costs and raise the level of coverage but many people are skeptical. They believe the new government regulations on health insurance companies will ultimately cause a rise in prices.

Why are medical care costs so high?

Health insurance companies base their rates on many factors such as policy holder’s age, health and lifestyle. The cost of medical care is also a large part. They have to make enough off premiums to cover what it costs for policy holders to receive care. When the cost of care goes up so do your premiums. So what is driving the price up for care?

Uninsured consumer care is a large part of the high price of health care.

When uninsured patients receive treatment the costs have to be passed on to others.

Hospitals are required to provide a certain amount of care regardless of a person’s insurance or ability to pay. The cost of lost revenue from treatments and services is spread out by price increases.

Medical advances and inflation are another big part of the costs. Technology is constantly improving treatments and drugs. Research to develop these improvements is partially funded by the profits on new technology.

This causes prices to go up and this is not only related to medical care. Technology causes prices to rise in all industries leading to a higher cost of living and inflation.

Finally lawsuits have caused the price of malpractice insurance to sky rocket. Many doctors cannot practice without coverage and are forced to raise their price. While there are many legitimate cases of malpractice there are many more frivolous lawsuits. An article published by Web MD claims that an estimated 37% of malpractice lawsuits involve no medical errors.

What are my health insurance premiums used for?

Your health insurance premiums do not just cover your medical care. They are used to cover many other expenses the company has. Health insurance companies have administrative costs as well as salaries and overhead. Premiums on the health insurance policies companies write are their main source of income.

Health insurance companies also use a cost share pool for paying claims. This means all of the premiums received are combined into one fund. This fund is used to pay doctors and hospital for any policy holder.

Suppose policy holder A pays $3000 a year in deductibles and filed $2500 in claims; he would have $500 of unused premiums. Policy holder B paid the same $3000 but was in an accident and ran up $9000 in claims. The insurance company takes that unused $500 to pay the other $6000 of that claim as well as unused premiums from other policy holders.

Have government policies lowered the cost?

There has been much debate in last few years about the rising cost of medical care and private insurance. The New York Times published an article in 2008 which claimed that America spends 40% more on health care than other countries. That year the costs were around 650 billion dollars.

The Affordable Care Act passed in 2010 is intended to lower costs. It is a tiered plan that will implement new policies through 2014. Many people are aware of its many policies to increase the standard of care and coverage; the ACA is also intended to lower prices of health insurance.

One change is a cap on insurance companies’ profits. They must use at least 80% of their revenue to pay premiums. If they fail to fulfill this requirement they must send rebate checks to all of their policy holders to make up the difference.

Many policy changes in the Affordable Care Act are designed at making coverage more accessible. By increasing funding to government insurance programs and making private health insurance companies more likely to cover people, our government hopes to lower the cost of health care.

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