Why Healthcare Insurance Premiums Rise

Health insurance premiums take a portion of many family budgets. Each year, many households see the cost of those premiums rise. Numerous reasons exist for the increases, ranging from insurers needing to satisfy shareholders to inflation to the cost of improved technology. When administrative costs are added, as well as having to provide healthcare for a growing aging population, the premiums rise at a cost outpacing inflation.

Shareholders

• Healthcare insurance providers operate as businesses. Many of them have shareholders, which means the providers need to make money every year to keep their shareholders from selling their stocks and investing in a more profitable company. One of the ways to turn a profit is to increase the amount of money coming in. The way healthcare insurance providers do that is by raising the premiums policyholders pay. Healthcare providers retain flexibility in setting their rates, allowing increases outpacing other areas of an economy, including cost of living increases and inflation.

Inflation

• Inflation causes premiums to rise. Even though the rate of health care insurance premiums rises at a higher percentage than the rate of inflation, inflation remains a factor in the increased costs. Inflation comes in two forms, with the first being the general inflation hitting the economy as a whole. The second form of inflation is "medical price inflation," specifically linked to the medical community and services.

Technology

• The medical community lists the rising cost of medical technology as yet another factor in rising healthcare insurance premiums. When a patient has extensive testing done when visiting a doctor or hospital, the insurance company pays for those tests. The more tests done, the higher the cost. In order for insurance companies to operate at a profit, the costs of the new technology get passed along to the policyholders. In addition to the cost of new technology, advances in drug treatment also cause costs to rise.

Administration

• Administrative costs make insurance premiums rise. The healthcare system remains complex, requiring multiple steps and personnel in order to handle filing needs, billing needs and other administrative duties. The more personnel needed to handle tasks, the higher costs become.

Aging Population

• Healthcare premiums rise as the general population ages. Advances in technology enable longer lives for many people. With longer lifespans come increased costs. When elderly patients rely upon social services for healthcare, healthcare providers pass those costs to paying customers. As the numbers increase for older patients and customers, costs increase.