Home > Personal Finance > 3 Reasons You’re Paying More for Health Care

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We’ve seen a lot lately about how the growth in health spending is slowing. So why does it seem like we’re paying more for medical care?

First, take a look at this phrase: “The growth in health spending is slowing.” That means it’s still growing, but it’s not growing as fast as it used to. Overall U.S. health care spending averaged $4,701 per person with employer-sponsored coverage in 2011, up $181 from the year before, says a fresh report from the Health Care Cost Institute that analyzed spending among the 156 million Americans under 65 with employer-sponsored health care (about half of the U.S. population).

Between 2009 and 2011, health spending grew annually at a rate of about 3.9% a year, according to various reports, down from a growth rate of 6.2%, or even 9%, annually in the preceding 7 or 8 years. So yes, growth has slowed, but health spending still totals $2.7 trillion a year, or 17.9 percent of the country’s GDP.

Spending also grew fastest for young adults, women, and people living in the Northeast, the report said.

And yes, more of it is coming out of individuals’ pockets. Let’s look at the three biggest reasons for that:

1. Rising underlying costs.

The report found that price increases were the main cause of spending growth, rather than an increased use of services: “Prices rose 5.4% for inpatient services, and 5.6% for outpatient services.” Beyond that, for many of us, the increase in costs are not visible, partly because payments come from a third party – an insurance company, for example, or Medicare. The insurance company is paying with someone else’s money (your employer’s, or the government’s). So noticing price increases, or tracking down where they are coming from, seems to become someone else’s problem because it’s someone else’s money. It might be hard to notice (or care) if you’re only making a $20 co-pay on most health services; whereas it’s much easier to notice (and care about) the rising prices at the grocery store or the gas pump, which come directly out of your pocket.

2. Rising deductibles and co-pays for individuals.

However, high-deductible plans are on the rise. Employers have long sponsored health insurance for many Americans. As long as costs were more or less acceptable for them, employers preserved the $20 co-pay. But now they’re feeling the pain, and pushing more costs onto individuals. High-deductible plans made up 10% of the market in 2006, but 34% last year, Kaiser Health News reported.

“In my practice I am seeing more and more people shouldering most or all of their health care expenses up to a certain amount, often several thousand dollars per year,” said Dr. Stephen Meyers, a North Carolina family physician and founder of a consumer healthcare resource website, SmartMedSavings.com. “You keep your fingers crossed that a sudden illness does not force the entire deductible to be paid all at once.”

3. Limits on pharmacy coverage and generally increased spending on medications.

Nationwide, spending on prescription drugs dropped slightly in 2012, according to the research firm IMS Health. This is unusual. Generally, drug prices rise fairly consistently, and those costs amount to about 15% of the nation’s health-care spending. Prescription costs can vary widely, as our research shows: the same birth-control pill can cost $9 or $63 in the New York area. Beyond that, said Dr. Meyers, “Plans can be quite restrictive in their prescription formularies and make it costly for you take anything beyond the list of preferred medications.”

The opaque nature of health-care pricing is the biggest issue, says Dr. David Belk, a California doctor who’s researched costs and writes about them at truecostofhealthcare.org.

“Even most health-care professionals have little knowledge or understanding of how much most of the individual products in health care should cost,” he said in an email interview. “As a result of this misunderstanding we’ve been led into having an overly inflated expectation of what these costs should be. This expectation makes it easier to grossly overcharge most Americans for even the most mundane and trivial medical services. … As examples, people often use their insurance to buy inexpensive prescription medications, many of which could be easily bought for less without using insurance,” he said.

The Takeaway

It can be hard to cut through the sound of axes grinding: “Obamacare to blame for rising costs!” “Obamacare gets credit for bending the cost curve!” “Premiums higher than expected!” “Premiums lower than expected!”

Stop and look carefully. The bottom line: For some people, not much has changed. Those would be people who have excellent coverage, a $20 co-pay and no particular limits on spending — or for the 50% or so of people in the U.S. who spend little or nothing on health care. But not all of us are always healthy, and those $20 co-pay plans are increasingly rare — the best of them will cost employers a bunch when the “Cadillac tax” kicks in.

For the rest of us, indeed, we’re paying more: in premiums, in co-pays, in deductibles, in out-of-network costs. And even if you have a $20 co-pay, somebody is footing the bill — your employer — or you, if your boss is paying higher premiums and not giving you a raise.

This is why it pays to shop around for your health care.

Image: iStock

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