It started out as such an innocent question: Why does health insurance get more expensive every year?
But just like Alice would tell you, sometimes an innocent question sends you down a rabbit hole of ugly truths and answers that come without any real sense of resolution.
Every employer, every employee, and frankly just about every individual in the country is hit by the same anticipated sticker shock during the annual open enrollment period. We know our wallets are going to take a hit, we just hope we can absorb the blow. But we deserve to know why.
After scouring the internet extensively for an answer and reaching out to several experts, we’ve come to several unsatisfying conclusions about why the cost of health insurance creeps up every single year. The short answer is there’s a lot stacked against us.
Reason 1: Accelerating Care Costs
Obviously, the main driving factor for the growing costs of health insurance is the ballooning cost of healthcare itself. It’s very expensive to visit the doctor these days, and there are a few key reasons as to why it feels like this cost growth has been accelerating in recent years. (Because, it has.)
According to projections the Centers for Medicare and Medicaid Services, healthcare spending was expected to rise by 5.1% in 2023, from $4.2 trillion in 2022. Let’s take a look at our bleak future:
Ouch. Why is this happening?
According to authors with Investopedia, “One reason for rising healthcare costs is government policy. Since the inception of Medicare for retired Americans and Medicaid for low-income people, providers have been able to increase prices with the knowledge that the government, not the individual, will be paying the bills.”
But that’s only part of the picture. There are several additional layers that have to be included.
Reason 2: We’re Getting Older and Sicker
The older we get, the more expensive it gets to care for our aging bodies. And the share of older Americans has been on the rise as our largest generations continue to age. Currently, according to data from Statista, our oldest generations (the Silent Generation and the Baby Boomers) make up roughly 26% of our population. Generation X is our next oldest group, which is about 19.6% of our population, followed by Millennials at 21.7%.
Generally speaking, people encounter more expensive medial procedures as they age (think knee replacements and heart surgeries). With each passing year, medical costs for each one of these groups are on the rise and will continue to increase.
On top of all that, rates of chronic illnesses have been increasing across the age spectrum. In a horrifying statistic from the National Institutes of Health, “Of the population 50 years and older, the number with at least one chronic disease is estimated to increase by 99.5% from 71.522 million in 2020 to 142.66 million by 2050.”
86% of health care costs are attributable to chronic disease. It’s a huge share of our total spending. With the prevalence of these conditions forecasted to only increase in the coming years, our costs will too.
Some of those chronic conditions could be mitigated by better lifestyle choices. If the American public would choose a healthier diet, more exercise, less alcohol and tobacco use, and earlier treatment for certain conditions, we’d all save a lot of money. But for today, we’ll have to add that notion to our “wish” bucket.
Reason 3: Industry Workings
The insurance industry itself is another factor that pushes our health premiums higher, specifically when it comes to administrative and labor force costs that ultimately get passed on to enrollees.
As explained by health insurance firm eHealth, “The rules are so complicated, it takes many people to process insurance claims, verify them, and pay them out. Medical billing professionals have to understand deductibles, coverage, and copays for numerous insurance companies. The training and compensation for these professionals translate into higher premiums and healthcare costs.”
In other words, it’s a big industry with a lot of moving parts and we’re paying for it.
More Every Year
This is by no means an exhaustive list of why our health insurance costs go up every year. This is only a broad overview of some of the primary culprits. But at the very least, it helps paint a picture of the reasons behind that dreaded autumn tradition when we know we’ll be seeing a jump in our premiums.
Maybe one day things will change, but for now, we’re all in this together. And for the foreseeable future, we’re all going to be begrudgingly paying a little bit more for coverage with each passing year.
