Why Are Healthcare Costs Rising?

FT Contributor  | 

Between insurance premiums, prescription prices, and other out of pocket costs, most Americans are familiar with the rising cost of healthcare. In fact, healthcare costs have risen steadily since the 1960s, with total costs reaching $3.5 trillion in 2017, or $10,739 per capita. Healthcare now represents 17.7% of gross domestic product, and is one of the country’s largest industries.

Compared to other first world countries, the United States spends almost twice as much per person on healthcare. Despite this, Americans have less access to healthcare resources than citizens of other developed countries, including nurses, physicians, and acute care hospital beds. Reasons why healthcare costs continue to increase include administrative costs, increased service price, and a growing population, among other factors.

Reasons for Increasing Healthcare Costs

Increasing healthcare costs are caused by a variety of factors. These may include:

  • Service price — The rising cost of medical services, including prescription drugs, emergency transportation, and other services, contributes to an overall increase in healthcare spending.
  • Administrative costs — Administrative costs are also partly to blame for the rise in healthcare spending, as hospitals attempt to coordinate billing between the government and a variety of different private insurers.
  • Population growth — As the population continues to grow, more and more people are in need of medical care.
  • An aging population — An aging population means that more seniors require healthcare services, including expensive events such as hospitalization or ongoing medical care.
  • Disease prevalence — The treatment of chronic diseases such as diabetes, high blood pressure, and high cholesterol contributes to a large fraction of healthcare costs.

Healthcare Issues in America

Healthcare costs are further exacerbated by the overall state of healthcare in America. In many cases, there is a limited amount of time between doctors and patients, which can result in misdiagnosis and a lack of proper preventative care. In addition, people often end up paying more for procedures thanks to a complicated billing system between the hospital and a wide variety of private insurance providers.

While some Americans are eligible for government-sponsored programs such as Medicare and Medicaid, many more fall through the cracks. Many others also have trouble navigating a complicated health insurance system and struggle to pay the medical bills that they incur. Mounting medical costs can even result in medical bankruptcy.

Patients may even avoid the care they need altogether because they can’t afford the bills. Higher out-of-pocket costs and rising premiums make health insurance that much more unattainable for average Americans. Many choose to forgo health insurance coverage entirely, only seeking treatment from free or sliding-scale clinics, or ending up in the emergency room as a last resort. This, in turn, exacerbates overall healthcare expenditures, as many people aren’t able to get the care they need until their medical issues have grown more serious.

How to Reduce Individual Healthcare Costs

Given the steady rise in the cost of healthcare across the country, many Americans are looking to reduce their own individual healthcare costs however possible.

Increase Your Savings

While increasing your savings may not actually help you to scale down medical costs, it may be the safest bet when it comes to weathering medical emergencies under the American healthcare system. Investing your savings in a portfolio of mutual funds or a managed-account solution can help you grow your savings and sock away further money in case of a medical emergency. Increased savings can also help you prepare for the likelihood that you’ll need additional medical services as you age or during retirement.

Use Employee Benefits

Employee benefits can be a cost-effective way to access preventative care and nip any potential health issues in the bud. Most healthcare plans include free or low-cost checkups and other preventative care benefits. Some employers may also offer free or discounted health-related services, such as gym memberships, wellness stipends, or dental and vision insurance. It’s a good idea to take advantage of any affordable services offered by your employer in order to save on healthcare costs down the line.

Switch to Generic Medicines

Generic medicines use the same active ingredients as brand name medications, but are often much less expensive. If you’re currently prescribed a brand name medication, you may want to consider asking your doctor to switch to a generic medication or to investigate other lower-cost options.

When it comes to prescription medications, it’s also a good idea to check the prices of your prescription at a variety of different pharmacies. Services such as GoodRx compare prices between different pharmacies and allow you to shop around in order to get the best deal possible.

Choose In-Network Healthcare Options

Due to the structure of private health insurance in America, in-network healthcare options are often much less expensive than out-of-network providers. Because in-network healthcare providers have contracted with a particular insurance company in order to accept negotiated rates, you’ll typically pay much less for the same services. It’s always a good idea to check your insurance plan to make sure that any specific doctors you need to see are within your network.

Use a Health Savings Account or Flexible Spending Account

Health savings accounts and flexible spending accounts are untaxed savings accounts that can be used for certain health expenses. In some cases, your employer may also help contribute to the account. Because these accounts are not taxed, you can put away more of your earnings toward any future healthcare expenses.

While healthcare costs continue to rise in America, the healthcare landscape is also constantly changing. In fact, the passage of the Affordable Care Act has somewhat slowed the growth of overall healthcare costs. New legislation, including proposals such as Medicare for All, may also help to curb healthcare costs.


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This post was updated January 29, 2020. It was originally published January 29, 2020.