High insurance premiums and medical costs don’t discriminate or differentiate based on your political affiliation. Therefore, healthcare should be one of your top priorities for the new administration. As a country we have been passengers passively watching the medical costs increase while the services deteriorate, only reacting when the problem lands on our doorstep.
This is a complex topic with fingers pointing everywhere passing the blame game like a hot potato. In my opinion, the costs are not necessarily attributed to wages, which is often the reference as to a leading cause, however, it’s actually services and products rendered. Various data sources point to four contributing factors:
1. hospitals (inclusive of clinics, urgent care and surgical centers)
2. physicians
3. prescription drugs
4. huge markups on medical supplies
That said, in all fairness, we must dive into some underlying data that suggests that there are several factors attributing to the first two items.
Today more than ever, the US is an unhealthy country. More people today have some form of chronic disease (aka comorbidity). To put this into perspective, about 40% of adults have a chronic condition and one in ten have diabetes. Another variable is the increased number of uninsured patients (including undocumented immigrants) utilizing medical facilities, who are then burdened with the cost, which are generally handled in two ways – 1) write off and 2) pass the cost to other consumers via increased cost of services. One of the common driving factors to these elements is social economics. That is, income, neighborhood, culture (racial/ethnic) and access to healthcare are some of the underlying factors. Lastly, possibly good intentions with definite unintentional consequences, which can be said about the ACA, because the government did fully contemplate the impact of the legislation. ACA affected the healthcare industry by:
- reducing Medicare benefits,
- removing lifetime maximums,
- prohibiting excluding pre-existing conditions,
- inviting the medical industry to overcharge, overtreat and conduct medically unnecessary treatments,
- adversely selecting against the exchanges (which the industry warned the government),
- as well as other changes that essentially increased the employer’s and employee’s costs.
Prescription drugs and medical supplies on the other hand are another matter. In my opinion, for drugs there are two controllable variables – 1) Regulate pharmaceutical companies on how they charge. Not only are they taking significant advantage of the market, it appears they are passing the R&D costs to the consumer. 2) Remove the middlemen, such as PBMs and distributors, to streamline the process and reduce costs. As for medical supplies, for example, there is no reason to charge $3 for a single tablet of aspirin. Other examples, involved wasteful spending for products, services, or tests not needed. All of these practices should be lumped together as price gouging.
Employers offering healthcare benefits have been challenged over the years to effectively manage the costs not only for their budgetary purposes but attempting to keep the costs affordable for employees. In 2014, the average annual premium for family coverage was $16,834, while ten years later, it was $25,572. That’s nearly a 52% increase, which significantly outpaced the consumer price index during the same period. This resulted in some employers either not offering healthcare and/or shifting some of the costs to the employees, such as via high-deductible programs, which have grown in use by approximately 35% from 2014 to 2024.
All of the above has made healthcare in the US one of the most expensive in the world. To add insult to injury, the level of care provided is subpar to other countries of economic stature (first world). I am not opposed to paying top dollar to receive the best in service and treatment. Therefore, the cost should be directly commensurate to the services received, however when the two do not align, that’s a red flag.
What’s the solution? Unfortunately, it’s legislation. I’m a supporter of capitalism, however when the product or services do not align with the cost, the consumer is handcuffed with limited options, and being leveraged, the government must establish some boundaries. Unlike buying car or home insurance, the consumer has limited insurance carrier options when it comes to healthcare and generally cannot change carriers until the following open enrollment period.
Make no mistake, I am not advocating for universal or any form of government-controlled healthcare (except Medicare, which is reserved as a future topic, that requires immediate improvements as well). Reducing the cost of healthcare services and products will reduce the cost of healthcare premiums.
The medical industry is entitled to make a profit, but not at the expense of financially collapsing the system and bankrupting individuals.
To that end, I encourage you to become engaged and pressure your respective political representatives and regulatory agencies to make meaningful legislative changes, while being mindful of good intentions leading to unintentional consequences due to not fully contemplating the macroeconomics. That is, the costs must be allocated somewhere, so it’s best to reduce the cost rather than transfer, which more than likely will end in the private sector (i.e. employer). Some legislative changes can include but not limited to greater enforcement of the Transparency Act, additional consumer protection regulations and improved tax relief provisions for bad debt and write-offs. Until then, the market will continue to increase its costs until everything is mortgaged leaving us no choice but to enter into a government-managed healthcare system. Final thought – ask anyone using Medicare for their opinion or those who travel from other countries to the US for treatment. More often than not, it’s not meeting their needs, restrictive, and the wait is unrealistic. Literally, this can be a matter of life or death.
About Joe Dore
Joe Dore is president of USBenefits Insurance Services. Mr. Dore is an Underwriting and Marketing executive with over thirty years of managerial experience in the insurance industry. He has a Bachelor of Arts degree from the University of Hawaii and most recently was a Branch Manager with the Insurance Company of the West where he was responsible for developing and executing the company’s production and loss ratio metrics. Prior to that he was an Assistant Vice President for the Zenith Insurance Company with leadership responsibilities in the Los Angeles Region. As the Home Office Product Manager for Republic Indemnity, he developed marketing strategies and oversaw their product development. Joe is a dedicated and detail-oriented executive with a proven track record of ensuring successful long-term company objectives.