What's to Blame for Healthcare Costs? Doing Nothing.

The Associated Press reports that a survey by the Kaiser Family Foundation shows that health insurance premiums rose last year by 9%. Let’s try to affix blame by looking at some of the common arguments that try to explain this.

Argument #1: Health Insurers are Greedy.

It is true that insurance companies, although in general not very profitable businesses (37th on the list of profitable industries – average profits around 5%), 2011 was a banner year for their profitability. But the source of the profits was, in part, Obamacare.

As reported in the NY Times, the requirement for insurance companies to provide insurance to the up-to-26 year old children of those with pre-existing policies had to be paid by someone and this incremental revenue contributed to their profit:

“Insurers were able to raise premiums to cover the cost of the law’s early provisions, like insuring adult children up to age 26, and federal and state regulators have largely proved to be accommodating."

Argument #2: Health Insurers are preventing patients from receiving needed care

Some of it was due to less use of healthcare and therefore lower payouts to health care providers. It is well known that as the economy goes, so goes the amount of money the nation spends on healthcare. Individuals restrain their consumption of optional healthcare when the economy is doing poorly. This is particularly true as out of pocket costs for individuals rise as their copays and deductibles for receiving care keep rising.

Argument #3: Health Insurers are concerned about the impact of Obamacare.

Some of it is due to the uncertainty of  what Obamacare will bring with its new mandates. Again, as the NY Times reported,“But 2014 and 2015 are likely to be far more challenging, as insurers are forced to adjust to the law’s greatest changes, like providing coverage to everyone regardless of whether they have an expensive pre-existing condition. “I think they’re going to go through a winter,” said Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm Deloitte."

Argument #4: The population is aging.

Insurers submit their rates to state and federal regulators as noted in the Times article. They must justify the rates to secure approval. The population is aging and the costs of healthcare are rising. For example, this year, the FDA approved a vaccine treatment for prostate cancer that costs about $90,000 per year. The demographic reality of increasing middle age baby boomers will wreck havoc with Medicare in the near future but is a present day reality for commercial insurers.

Argument #5: Physician and hospital costs continue to rise.

New technologies like incredibly costly electronic medical records and new regulations and initiatives, like organizational efforts to improve patient safety and prevent errors are all good things, but they do not come cheap.

So whom shall we blame? No doubt Obamacare will be blamed as will the insurance companies. The truth is that nothing has been done to restrain the growth in the cost of health care and the rising premiums reflect that reality. If the use of discretionary care declines, then next year might look better from a cost perspective but as Keckley points out, winter is coming.