Why Are Health Insurance Premiums So High?

Health insurance premiums continue to rise at annual rates that more than double the national inflation rate. A multitude of factors affect these increases, many of which originate outside the industry boundaries, or are otherwise unforeseeable. However, countless identifiable issues do exist which directly impact insurance carriers’ price points and profit margins.

Administrative Expenses

• All companies share a plethora of generic business expenses like employee salaries and benefit packages, taxes, lease payments, liability insurance and workers compensation, office supplies and equipment, and technology. The price for a majority of these factors increases regularly; every year, the simple cost of doing business gets higher, and health insurance companies are no more insulated from the effects than any other business.

Increased Use of Services

• Technological advances in the healthcare and pharmaceutical industries creates an increasing number of new and innovative methods for improving quality of life and eliminating problematic issues. The expanded number of treatment options leads to a higher number of customers utilizing different techniques. More members are using a larger percentage of their policy benefits than in years past, taking advantage of previously ignored or overlooked features.

Rising Treatment Costs

• The greatest single expense category for a health insurance company, where the bulk of received premium dollars are spent, is the cost of treatment received by insured customers. Medical insurance carriers pay a large portion of the actual price for services provided to members, yet the majority of those customers never see treatment invoices and don’t realize how expensive their procedures really are. When physicians and facilities raise their prices, insurance companies must proportionately raise their own to maintain the same profit margin.

Malpractice

• Physician malpractice insurance costs, although not directly an expense to health insurance carriers, is a notable factor impacting rising premiums. The speed with which new technology is developed and implemented, and new pharmaceuticals developed and dispensed, has created a significantly increasing number of lawsuits against healthcare providers for undesirable results. The property and casualty insurance industry reacted as expected and raised malpractice insurance premiums for doctors, who in turn raised their service fees, forcing health insurance carriers to follow suit.

Claims Processing

• According to statements from the American Medical Association, 20 percent of health insurance claims are handled incorrectly. Approximately $210 billion is spent on claims processing every year, as thousands of employees, administrators, and an army of policyholders and their families are involved in managing, arranging, and paying for medical services. The AMA has estimated that $778 million could be saved annually for every one percent decrease in improperly processed insurance claims. Increasing health insurance premiums are a reflection of the industry's continued inability to reduce the number of wrongly handled claims.

Errors and Misappropriation

• Considering the precariousness of this insistent, yet delicate, high-speed financial network that exists in the health insurance industry, there is a level of acceptable and expected misappropriation of funds. A large percentage of this misplaced or otherwise misused money goes unrecovered because it is often more expensive to investigate the source of the error and correct the problem than it is to simply ignore a pittance. Further, errors that are too large to go unnoticed may take time to correct, seeping funds in the interim.

Fraud

• Fraud is the largest single loss category for a health insurance carrier. Profit lost from paying physicians and facilities for fraudulent claims is an increasingly rampant problem, one that appears nearly impossible to stop or even adequately deter. Exacerbating an already frustrating liability is the rising number of fraudulent actions committed by patients. Falsifying identity information and lying on paperwork to obtain medical treatment that would otherwise be unattainable is a growing concern from both a financial loss perspective and a health safety standpoint.