A Closer Look at Health Insurance Costs and How They Affect You

While the dramatic progress of surgical techniques, technology and outpatient treatment has broadened the scope of health insurance, it's also changed the way consumers use traditional healthcare services.

Factors such as increased medical costs, an aging population, increased fraud, improved treatment for catastrophic illnesses, mandated benefits and the use of technology, all contribute to the rising cost of health insurance. As a result, health insurance premiums have also risen. Many consumers may be unaware that insurers impose annual rate increases to counteract the impact of rising healthcare costs on benefits paid to all insureds. This means rates rise even if the consumer didn't submit a claim. The financial impact, or risk, of incurred claims is spread among all insureds. The collective approach to evaluating claim payments is known as "pooling of risks."

Take a closer look at the trends affecting increasing premiums:

Elevated Healthcare Costs--- One of the main drivers is the cost of healthcare itself. According to the Health Insurance Association of America (HIAA), a recent survey showed many Americans believe insurance industry profit margins exceed 40%, when in reality those margins are closer to 2%. In comparison, the profit margins for hospital, medical supply companies and pharmaceutical companies ranging from two or more than eight times that amount. Because healthcare providers are not subject to "price caps," goods and service costs can be set at any amount. And every resulting increase has a significant impact on insurance premiums.

Cost Shifting--- In an effort to reduce the federal deficit, programs such as Medicare and Medicaid have limited their benefits. To make up the difference, healthcare providers shift costs to those capable of paying out of their own pockets or with the help of private insurance.

Mandated Benefits--- State mandated benefits regulating minimum hospital stays, chiropractic treatment , podiatry and mental health benefits, to name a few, have increased dramatically over the years. While these mandated may be valid and important, any addition to medical benefits increases healthcare costs and ultimately raises insurance premiums.

Guaranteed Issue Policies--- Guaranteed issue policies -- those not requiring medical underwriting -- make insurance accessible to more people, but rating laws restrict insurers' ability to charge appropriate rates for the associated risks. The outcome is higher insurance rates for everyone, resulting in a higher number of people unable to afford health insurance.

Technology / Increased Catastrophic Care--- Open-heart surgery, organ transplants, drug therapy and other complex procedures are now performed more routinely. While advanced technology enables doctors to provide new treatments, this technology is typically very expensive. To recover some of the associated costs, insurance premiums are raised.

Prescription Drugs--- An increase in consumer print and television advertising campaigns promoting brand name prescription drugs has increased the demand and costs for these items. When a new drug is created, it takes many years before a corresponding generic drug is available. In the meantime, patients request -- and doctors prescribe -- the new brand name drugs, causing sales in this area to rise to an all-time high.

Insurance Fraud--- While charges submitted to insurance providers by physicians' office are usually accurate , sometimes claims are falsified. This costs the insurance industry billions of dollars. Consumers can help offset these costs by thoroughly investigating their hospital bills. By comparing itemized services to the actual services rendered, insurance fraud and insurance premiums can be decreased.

An Aging Population--- Americans are living longer and longer, and as people age, the likelihood of needing medical services increases. To compensate for this increased medical care, insurance premiums also increase.

Malpractice and Over-Treatment--- Malpractice suits against physicians and hospitals occur more and more frequently, and settlements are larger than ever. The result is expensive malpractice insurance for physicians and possible over-treatment of patients in an attempt to avoid possible lawsuits.

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