Americans Staring at Increasing Healthcare Costs

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Look at increasing healthcare costs

Source: ObamaCare

As if the tax hikes and gasoline price rises were not enough, Americans will now possibly have to contend with increasing healthcare costs. It is turning out that the Affordable Care Act is anything but affordable and it is going to hit America like nothing ever has. This is probably the biggest collision America has faced since 9-11 and this giant regulation has cost jobs and is going to cost even more.

According to a report published on the website of the Kaiser Family Foundation, medical expenditures in the United States has risen by more than 10 times in the period between 1980 and 2010. The rate of increase may not be as sharp in the coming months but the costs will still rise proportionately more than the growth in salaries. For instance, according to a report by the research foundation Commonwealth, if there is not any federal intervention, family health insurance premiums will rise by more than 60 percent from now to 2020 while average median incomes will grow by a little more than 10 percent. So, the average American’s wallet will continue to be stretched thin.

The above-mentioned statistics sound grim and have probably left you wondering about the causes behind the spike in healthcare costs. The discussion below delineates some probable reasons that have already and/or may lead to the rise in medical expenses.

Inefficient Healthcare Administration

Many industry watchers and analysts feel that the inherent inefficiencies in the American healthcare system are the primary reasons behind escalating medical costs. The inefficiencies stem from the lack of coordination between the various service providers that lead to duplication of services and wasteful administrative practices. The costs thus incurred are passed on to the users of the healthcare system thereby increasing their expenses.

The healthcare reforms undertaken by the Obama administration seek to streamline the operations and administration of the system at large. For instance, the reforms mandate the adoption and/or upgrade of medical IT infrastructure that will facilitate sharing of patient information between the various medical providers so that the duplication of services can be curbed. The adoption of sophisticated IT practices will also automate many administrative tasks and thus add to the cost-efficiency of healthcare practices.

But there is a catch. The implementation of the ObamaCare policies is also expected to lead to an increase in healthcare costs.

The Increased Costs of Implementing ObamaCare

The mandates of the Obama healthcare policy will be implemented from 2014. According to Kathleen Sebelius, secretary of U.S. Health and Human Services, the implementation of the policy could see costs escalate in the personal health insurance market. The new laws will prohibit insurers from imposing high insurance rates on women, the elderly, and people suffering from certain medical conditions. But on the other hand, they are likely to charge higher premiums from men and younger people.

The implementation of ObamaCare will also see more and more people coming under the health insurance net. So, the costs of healthcare will definitely rise for those individuals who will buy insurance products for the first time.

Once ObamaCare comes into force, healthcare establishments will have to overhaul their existing IT infrastructure and even tweak their operational procedures to adhere to the guidelines of the federal laws. This will raise their administrative costs at least initially and will compel them to pass these on to their patients.

Rise in the Number of Chronic Diseases

Not all causes that may lead to an increase in medical costs in the USA can be attributed to the ailing healthcare system. The rise in the number of chronic diseases is also likely to see a drastic increase in individual health insurance premium amounts. Blame it on junk food-laden diets, sedentary lifestyles, and unhealthy habits like smoking and alcoholism, there are more instances of diabetes, hypertension, and cardiac ailments in America today than ever before. The increase in the high-risk pools will only prompt insurers to slap higher charges on individual health insurance policies. According to the Society of Actuaries, a non-partisan group, premium amounts are likely to rise by an average of 32 percent all over the United States. The charges would of course, differ across various states.

Price Transparency of Healthcare Services

Now here is an apparent contradiction. In a regular competitive market, price transparency regulations actually compel service providers to improve the quality of their offerings and bring down the costs in order to attract new and retain existing customers. But the healthcare sector operates on entirely different principles mainly because consumer scrutiny in this marketplace is not so stringent.

According to the accepted laws of economics, consumers carefully weigh and compare the costs of offering by different providers before making a purchase. They select a higher-priced product or service only if it exhibits a considerably superior quality than competing products or services. But these laws are not applicable in case of healthcare plans.

It is not easy for a layman, or most people, with little or no medical knowledge to evaluate the quality of healthcare services. In fact, the general perception is that the more the cost of a service, the superior it is with respect to similar services by other providers. So, healthcare users usually do not shop around for lower-priced healthcare products and services. Healthcare providers are well aware of this mindset of their customers and so are not compelled even by price transparency regulations to bring down the costs of their services.

Too much Spending

It is evident from the above discussion that the predicted rise in healthcare costs in America will be fuelled by a number of diverse and dynamic factors. Some of these causes like the increased costs of implementing the restructuring measures proposed by the ObamaCare policy will fizzle out eventually. Others such as wasteful administrative practices need to be curbed by stricter laws or serious budget cutting such as the sequestration which America certainly needs more of. Some others like the prevalence and increase of unhealthy lifestyles will have to be addressed at the personal and psychological level. But it is evident that the American healthcare system is in need of another overhaul before the rise in the costs can be stemmed.

The Affordable Care Act did not fix America’s health care situation it just expanded a broken system and America is already feeling a tidal wave of worry and financial loss.

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About Author

Benjamin is from Sacramento, CA. He has 2 master’s degrees and served 4 years in the U.S. Navy. He has worked at Wells Fargo Financial and has been investing in equities since 1995. He is a constant reader of finance articles and books related to business.


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