Health Care Costs and What to Do About it

Health Care Cost for Average Families Is Increasing

Health care costs are increasing at their lowest rate in 20 years, according to recent studies (AON, 2015), but at 4.1%, these costs are still increasing faster than the rate of inflation (Patton, 2015). For the average American family, the reality that health care cost increases have been sustained over two decades, at rates faster than either wage increases or the inflation rate, is cause for concern. Families already having a tough time making ends meet ultimately find themselves devoting increasingly large portions of their earnings to health care, to the detriment of other expenditures. There are a number of different factors that have contributed to this trend.

One of the reasons why health care costs have increased so much is that there are a number of different causes, and these causes are all working in the same direction of increasing costs. First, prescription drugs costs have escalated significantly over this time period. Drug costs are rising faster than other costs within health care. The use of drugs is higher than it was before, but in addition to that, the drug costs are driven by monopolies that the FDA grants drug makers, combined with the high and rising cost of bringing new drugs to market. But as Americans use more drugs, and there are few cost controls on drugs, they have become a bigger factor in overall health care cost (PWC, 2016).

In addition to regulatory issues, there are economic ones as well. In economics, bargaining power is understood to derive from several factors and where health care is concerned, none of the factors are in favor of the consumer. Information asymmetry means that health care providers, drug makers and equipment makers all have much more knowledge about the cost of goods and services related to health care than the average consumer. Consumers also know little about insurance costs. Consumers are highly motivated to purchase health care -- when one is sick, or when one's children are sick, there is a tendency to do whatever it takes to get better. Acquiring detailed information and bargaining down costs on the basis of that information simply does not happen. So consumers are price takers in health care, and that allows the health care industry to drive up prices, and to pass along its cost increases to consumers. Arguably, the insurance exchanges brought about by the Affordable Care Act are helping to increase competitive pricing in health care insurance, reducing the rate of cost increase.

In terms of social forces, an aging population contributes to overall health care costs. Even though seniors typically receive coverage under Medicare, they also consume substantial amounts of health care, which drives up the demand and cost for everybody. Companies, in return, have taken to reducing what they offer to their employees. The result is an increase in deductibles and copays, which directly results in an increase in health care to the American family.

There are several effects on the community that result from these increasing costs. One of the most significant is the number of people who face bankruptcy as a result of the lack of coverage, or inability to pay their share of coverage. Remember that most plans even under the ACA do not offer full coverage. People still pay substantial amounts of their health care out of pocket. This has led to medical costs being the number one cause of personal bankruptcy in the United States (Khazan, 2014). Bankruptcy is potentially devastating for those who face it, but it also represents a business cost to health care providers and to financial institutions. As a result, all communities suffer the adverse economic effects of high bankruptcy rates that have come with rapidly increasing health care costs.

Another cost to the community is that many people forgo proper health care, when they feel that they cannot pay. This means anything from failing to see a doctor when they should, to cutting their pills and therefore receiving inadequate dosage. Ultimately, these people are sicker than they should be, and this can come at significant cost to the economy. Additionally, sicker people can place greater strain on their families. Economic costs associated with sickness -- both sick workers and people who have to take time away from work to attend to sick family members -- runs into the billions, some of which could be avoided but for the sharp increases in health care costs.

Most government officials have vague views on the health care issue. To be honest, they tend not to be subject matter experts. Democratic officials advocate the Affordable Care Act as the primary method for addressing rising health care costs, while Republican officials prefer other unspecified means. All officials more or less agree in principle that rising health care costs are a concern for American families, however.