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"What Happened To Our Health Insurance?": An Employee's View
An inside look at what's really happening in the American healthcare system in 2023.
Dear Average Joe,
As an advisor that is trying to help change healthcare, I'd like to answer your question. I'll share some guidance on solutions that are now available — which many businesses don't yet know about — so that you can flag them to your HR team. But, first, let me address your core question: WHAT IS GOING ON?
There’s an old business saying that states you can’t have something fast, good, and cheap – you can only have two. Unfortunately, the current U.S. health insurance system is struggling to offer even one of those outcomes.
How Does It Really Work Today?
Health insurance companies are in business to evaluate risk, and if the cost of claims is rapidly rising, you can be assured that the cost of insurance will follow. Health insurance premiums generally reflect an increase in the underlying healthcare costs. Insurance companies will pass cost increases onto employers in the form of higher premiums, who then ask for more money from their employees. With no end in sight, it’s important to understand the causes of these spikes.
Currently, there are many types of insurance in the U.S. and most of these policies work well and are straightforward. Examples include car insurance, life insurance, and even pet insurance, where you pay a monthly fee that provides financial protection against unforeseen and, sometimes, catastrophic events.
For example, people buy homeowners’ insurance to safeguard against the financial loss incurred in the event of a fire or theft. Because millions of people are paying into the insurance pool, the pool has enough money to protect someone whose house is damaged.
While insurance provides a protection against unforeseen loss, it does not protect against routine expenses. Car insurance protects you if you wind up in a car wreck or your vehicle is stolen, but it doesn’t cover routine maintenance like bald tires, oil changes, or replacing brake pads. The reason is that everyone needs these routine services and so there is no risk to protect against. Insurance is meant to share risk and it stands to reason that higher-risk individuals would pay more to be insured. Someone who has had two accidents is going to pay more for car insurance than someone who has never had an accident because their track record indicates they are more likely to have another accident.
But, health insurance in America works very differently.
Many of us have health insurance plans that are essentially “pre-funded sick-care plans.” They cover routine checkups, less serious illnesses, recurring expenses like prescription medications, as well as safety from major medical events. All of this has made healthcare more expensive and more complex than any other form of insurance — and that is true whether you get your insurance from your employer, through the government, or if you pay for your own plan.
The Impact Of The Affordable Care Act On Your Pocket
The Affordable Care Act (ACA), known as Obamacare, was passed on the promise that it would make health insurance more affordable and bring down healthcare costs. The few positives that came out of the ACA are significantly overshadowed by the unforeseen consequences that were created. For example, when the Affordable Care Act first launched, it limited the variety of health insurance plans private companies could offer by mandating that every plan had to cover the same set of ten health benefits, including preventive care, maternity care, mental health care, and contraception. For smaller groups, the ACA also handcuffed insurers from charging premiums that were based on the actual risk they were assuming. These “age-banded” rates offered very little regarding an accurate risk profile and thus insurers were forced to “over-rate” to cover for the unknowns.
The ACA soon created thousands of status quo health insurance agents who took to the streets to offer their clients “cookie-cutter” plans. And, the reality is they have not stopped.
So, what have we learned in the last 10-20 years? Statistically, at one point or another, every individual will need healthcare. There are over 320 million people living in the United States and the U.S. population is growing unhealthier every year. According to the Center for Disease Control and Prevention (CDC), more than half of the U.S. population has at least one chronic condition, such as asthma, heart disease, or diabetes, which all drive up health insurance costs. According to the National Library of Medicine, a staggering 85% of healthcare costs in the U.S. are for the care of a chronic condition. What’s more, recent data from the Harvard School of Public Health found that nearly 40% of adults over 20 in the U.S. are either overweight or obese, which can lead to chronic illness and inflated medical spending.
As the U.S. population gets sicker and more overweight, the risk of covering the average American goes up, and the higher the risk, the higher the cost of annual premiums. Data from the Kaiser Family Foundation (KFF) shows between 2011 and 2021, the average premiums for family coverage rose from $15,073 to $22,221 — that’s an increase of 47.4%.
The Machine Of Healthcare
Another factor that influences the rising cost of healthcare is that there are a lot of stakeholders involved. There are currently more than 15.8 million jobs in healthcare, making the industry one of the nation’s largest employers. With so many people invested in the system, it’s difficult to change anything without one or more groups of people worrying that any modifications will negatively impact them personally and/or professionally. No matter how “sensible” a reform may seem, there will always be opposition because there will always be someone who believes they’re on the losing end of the deal.
Continual advances in healthcare innovation have led to procedures and equipment used today that were unheard of 20 years ago. One of the most impressive areas of medical innovation is the development of new prescription drugs. People who had at one time resigned themselves to a lifetime of pain, suffering, or even death, now have a new quality of life due to the recent development of “miracle drugs.” Chronic diseases are now being treated with high-cost drugs and although they are effective, they are also very expensive. And, you can expect to pay for these costs in the price of your insurance. Currently, prescription drug costs make up about 30% of an employer’s overall health insurance cost (up from 15% in just 10 years) and for some employers, they can expect this cost to account for 50% of their costs.
Robert Graboyes, a healthcare scholar at George Mason University points out, “Americans want the newest and latest technology available, and the American healthcare system can often provide that quickly. But that quality and speed comes at a cost.”
According to a study by the Journal of the American Medical Association (JAMA), Americans tend to associate more advanced technology and newer procedures with better care, even if there’s little to no evidence to prove that they’re more effective. This assumption leads both patients and doctors to demand the newest, and often most expensive treatments and technology available, even when unnecessary.
Data released from the KFF shows that roughly 49% of the U.S. population gets their insurance through their employer, which means nearly half of Americans don’t make any actual consumer decisions about the cost of their insurance because their employer already determined it. This can be catastrophic for employees if companies opt for the wrong plan. In addition, most people are unaware of just how much variance there actually is in medical charges from doctor to doctor and hospital to hospital. There is simply a lack of information about medical care and its costs.
A hospital can charge one patient $500 for an MRI and 30 feet away charge another patient $3,000 for the same MRI.
In health care, the charges for procedures and services can vary widely depending on the provider. For example, a hospital can charge one patient $500 for an MRI and 30 feet away charge another patient $3,000 for the same MRI. The only thing that is different is the “credit card” (the type of insurance) that they are using to pay for the procedure. Again, this is very different from most other economic models. If you are shopping for a new car, you can be certain that most dealerships will have comparable pricing – within a reasonable range of one another.
American healthcare does not.
Normally when people go to buy something, they have a limit as to what they are willing to pay, but this is not so with healthcare. With healthcare, there is no limit to what people will pay to maintain health and receive necessary treatments, and very often people agree to prescriptions or procedures with no idea what it is going to cost. Healthcare providers are taking advantage of this willingness to pay and continue to invest in more miracle procedures and prescription drugs, regardless of cost, as long as there is a chance for healing and improved health.
Despite a wealth of information at our fingertips online, people often don’t know the differing costs of health care procedures, facilities, doctors, and prescription drugs and there is no uniform or quick way to understand treatment options and their costs. We would never buy a car without comparing models, features, gas mileage, out-of-pocket costs, and payment options — yet, this is how we buy healthcare.
Lack Of Competition and Defensive Medicine
Perhaps the biggest driver for higher costs is a lack of competition and price transparency. According to the Center for Studying Health System Change, hospitals and providers can demand higher prices because mergers and partnerships between medical providers and insurers are one of the more prominent trends in America’s current healthcare system. Increased provider consolidation has decreased individual market competition, thus negating lower prices, improved productivity, and innovation. Without this competition, these near-monopolies have created a market where both providers and insurers are able to drive up their prices unopposed.
For example, a study done by the American Journal of Managed Care found that hospitals in concentrated markets could charge considerably higher prices for the same procedures offered by hospitals in competitive markets. Price increases often exceed 20% when mergers occur in concentrated markets. However, reviews found these cost increases didn’t improve healthcare quality.
Frequently called “defensive medicine,” some doctors will prescribe unnecessary tests or treatment out of fear of facing a lawsuit and the cost for these treatments adds up over time. This is no surprise given that our current system is structured to support a fee-for-service model of healthcare delivery and payment. A recent study has shown that the average cost of defensive medicine is around $100 to $180 billion each year.
Surprisingly, The Commonwealth Fund reports that the fear that healthcare providers will withhold important services to stay under budget is a more significant concern to Americans than the overutilization of services.
According to the Centers for Medicare & Medicaid Services, in 2021, healthcare expenditures skyrocketed to $4.3 trillion, despite the decrease in health services accessed in 2020 due to the COVID-19 pandemic. National healthcare spending is expected to reach $6.8 trillion by 2030. Dr. Marty Makary of Johns Hopkins Institute for Public Health Policy has shown that $0.48 of every $1.00 spent in America is directly or indirectly spent on healthcare.
Despite all this money spent, the numbers tell us that the U.S. spends more per capita on healthcare than ANY other comparison nation, yet ranks 38th in health outcomes of all developed nations. Within our current model, it is hard to manage cost, quality, and availability. A system that out of balance needs an adjustment.
Remember those status quo brokers and “cookie-cutter plans” I mentioned earlier? They are also a large reason why costs continue to rise. These brokers work for huge agencies that have no incentive to stop selling the plans that have made them millions of dollars. These plans are easy to administer and often will tie their compensation to a percentage of the premium. Put simply, these agents make more money when their clients pay more. So why would they advocate for lower costs if that means they are going to lose money as well? When you also factor in retention bonuses that carriers will provide for renewing year after year, it is easy to see why so many companies are offering the same “stuff.”
Everyone has been conditioned to think that those are the only choices available.
There Are Positive Changes Happening
As we look towards a more favorable future, there are fortunately a growing number of vendors that want to think differently and provide strategies that make a difference. For example, many people are unaware that an advanced scan, such as an MRI, can be thousands of dollars less if performed at a free-standing clinic rather than in a hospital setting. Having an MRI performed at one of these clinics does not lessen the quality of the scan but can save a lot of money. To encourage this behavior, custom health insurance plans can waive any out-of-pocket costs that a person would be responsible for. Given the right information with the ability to make an informed decision, people can get their MRI for free!
This is just one example of the many cost-saving strategies that are available.
I encourage you, Average Joe, to speak with your employer and to ask why the company picked the type of health plan they offer. Too often, the answer is going to be that it is easier to continue with what is familiar. Or, they may not even know there are other, better options for them and their employees.
I understand that decision-makers can be skeptical because no one wants to make a mistake that upsets their employees or that costs them their own job. But, the fact is, if a company is not open to the reality that there might be a better alternative (think Blockbuster vs Netflix), I can assure you that there are companies that have embraced being proactive and those are the places that you want to work. I wish you all the best.
Sincerely,
An advisor that is trying to make a difference