Each year, out-of-pocket medical expenses increase for patients. This is true for those with individual or employer-funded health plans and those who have no insurance. Since 2010, health insurance premiums have risen by 55%, outpacing wages and inflation. Health plans often have high premiums, high deductibles, and high out-of-pocket expenses. These challenges are compounded by frequent out-of-network medical bills too.
As of 2021, the majority of Americans do, in fact, have health insurance coverage— but only 62% report confidence in their ability to afford standard healthcare. This comes as no surprise since the average cost of a family health plan was $21,342 in 2020. Uninsured patients face even more uncertainty as they do not have insurance plans to protect them from expensive medical bills.
As time goes on, research into the healthcare industry continues to reveal startling causes and implications of rising out-of-pocket medical costs. High medical costs threaten the well-being of everyone. Patients are increasingly unable to afford medical care. One recent study demonstrated that nearly 60% of patients avoided visiting their physician because they were afraid of the cost.
Practices and providers lose revenue in this situation too – as patients either cannot afford the cost of care or they are afraid of taking on medical debt. It is important for providers, insurers, and practices to understand what is causing health care costs to rise so progress can be made in making healthcare affordable and equitable.
The Causes of Healthcare Costs
Patients today are healthcare consumers, a trend previously discussed on this blog. However, the root causes of rising healthcare costs need more attention. The causes of this can be broken down into three areas:
- Employer-based health plans
- A lack of transparency among insurers
- Patient behavior influenced by high costs
Employer-provided healthcare plans prove costly for many participants. Companies often engage in healthcare spending strategies that are motivated by tax incentives. By offering high-deductible insurance plans, many companies see employees opting for tax-exempt HSAs. Furthermore, employers tend to reduce their healthcare spending by opting for high premiums, deductibles, and copays. The amount they pay is tax-deductible for their organization and tax-exempt for employees. Nearly 50% of the population is insured via their employer, but from a macro view, this means that the cost of care and coverage is not a true consumer decision.
These practices and tax incentives drive up the cost of care. It is not uncommon for employees to pay high premiums and high deductibles with their employer-sponsored plans. These costly plans, combined with stagnating wages, are forcing more patients to avoid seeking preventive and routine care through their providers. Some employers are choosing to forgo health insurance altogether.
There is a considerable lack of transparency amongst health insurance providers. Many medical providers and insurers have been merging, which decreases market competition. Consequently, it is increasingly difficult to lower prices, improve productivity, and make innovations. With this financial strategy, providers and insurers can raise prices at their will. Furthermore, a lack of transparency is evident at the management and support team levels.
Oftentimes, there is miscommunication between the two, which can lead to patients paying for unnecessary medical procedures. In general, patients associate the most advanced technology and procedures with better care, even if the evidence is lacking. This can lead to duplicate testing and overtreatment. Most insurers operate with a fee-for-service system that reimburses for each medical procedure and visit. Naturally, the more services are provided, the more fees are paid.
Research into the rising costs of out-of-pocket healthcare payments has revealed startling implications. Unaffordability is correlated with poor medication adherence and treatment avoidance for patients with conditions such as rheumatoid arthritis, kidney disease, and diabetes. These dangerous consequences are also a risk for patients with oral or breast cancer. Chronic illnesses are becoming more prevalent in the US population, especially diabetes and heart disease. In fact, chronic conditions account for over 85% of health care spending since they are so difficult to treat.
The prevalence of preventable diseases is a part of the rising cost of the healthcare cycle. The four leading causes of death in the US are heart disease, cancer, pulmonary disorders, and stroke. Poor nutrition, obesity, and smoking are all reparable risk factors that can be addressed by preventative education or early detection, neither of which is common due to the unaffordability of even standard healthcare.
Preventable chronic illnesses tend to inflate healthcare spending. Simply put, the higher the risk of insuring the population, the higher the cost of insurance premiums. This creates a vicious cycle where healthcare costs continue to rise, keeping more patients from seeking preventive care. Those patients become ill and are more costly to treat, resulting in higher out-of-pocket bills and higher insurance costs.
What Can be Done?
Overall, hospitals benefit from reductions in the percentage of uninsured patients. However, individuals with employer or marketplace coverage will continue to have high deductibles for the foreseeable future. The frequency of bad debt from missing payments can be linked to patients whose income is above charity care thresholds but who still cannot afford out-of-pocket costs for healthcare. Healthcare providers need to develop robust strategies for operating efficiently within this complex system. Reaching a fine balance between securing payment and accommodating patients is the best strategy until reforms are made.
Focusing on patient experience and helping patients manage high costs should be the top priority for any practice or hospital. Leveraging technology, strong customer service, and flexible payment plans can help practices and providers ease the burden on their patients. By making payment easier and more affordable, patients will be more likely to afford their bills while practices can maintain healthy revenue streams.