Health Care Costs Facts
In 2013, 56 million people struggled to pay health care related costs. That's one out of five American adults. Of those, 10 million had health insurance to cover most of the costs. But they couldn't meet the deductibles that average between $5,000 and $10,000 a year. That's because the average household income is $59,019.
Most people paid the bills as they could, over time. But 16.5 percent took longer than a year to pay them off.
Another 8.9 percent just couldn’t pay them at all.
Consequences of High Health Care Costs
Almost one in four cut back on taking their prescription medications. For example, one person couldn't pay the $1,200 a month for her insulin. She reduced the dose, and her diabetes got worse. About 30 percent postponed getting follow-up care. That leads to further health problems down the road.
These families were not the poor, who are usually well-covered by Medicaid. Instead, two-thirds were homeowners and three-fifths were college graduates.
They were middle-class Americans who got hit with massive, and unexpected, out-of-pocket medical expenses. Those with private insurance saw an average of $17,749 per family. Those who lost insurance during the process faced $22,658 in bills. Those without insurance obviously were hit with the most, at $26,971 per family.
No. 1 Cause of Bankruptcy?
In 2015, the Kaiser Family Foundation found that there were 1 million adults who declared medical bankruptcy. That is more than those going bankrupt for unpaid credit card debt or mortgage defaults. A 2013 Nerdwallet study found that almost 30 percent maxed out their credit cards, while 8 percent were forced into bankruptcy because the illness cost them their jobs.
Even more disturbing was that 78 percent of them had health insurance that failed to cover all their bills. Sixty percent were let down by private insurance, not Medicare or Medicaid. Ten million of them will incur medical costs they can't pay off each year, thanks to high-deductible plans.
How did those with insurance wind up with so many bills? Before the ACA, many were sunk by annual and lifetime limits. Others were stuck when insurance companies denied claims or just canceled the policy once they got sick.
But even after Obamacare, many weren't prepared for high deductibles and co-insurance payments. In 2017, 31 percent of the insured found it difficult to afford copays. That's up from 24 percent in 2015, according to a Kaiser Family Foundation study. Similarly, 43 percent found deductibles too high, compared to 34 percent in 2015.
Thirty percent of health care spending goes to waste. Unnecessary services, such as overprescribing antibiotics, wastes $210 billion each year. Administrative costs for paperwork adds $190 billion. The billing staff must process different claims for each of the hundreds of different insurance plans.
Some of this is improper payments from Medicare, Medicaid, and the Children's Health Insurance Program. Although huge amounts, they are small percentages of the programs' budgets.
|Program||Amount (2014)||Percent of Budget|
Fraud costs as much as $200 billion a year. This includes abuse of prescription painkillers. The U.S. Center for Disease Control estimates that 12 million adults used prescription drugs for nonmedical reasons in 2010.
Of these, there were 170,000 seniors who "doctor shopped," getting prescriptions from at least five doctors for controlled substances.
Heavy Use of Emergency Rooms by the Poor
In 2001, emergency room doctors spent half of their time on patients without insurance. These patients were covered by Medicaid, thanks to the EMTALA. But Medicaid limits its payments. As a result, hospitals provided $46.4 billion in care that had to be written off as bad debt.
The Institute of Medicine found that between 210,000 and 440,000 patients died annually from medical errors in hospitals. That's equivalent to 10 jumbo jets crashes a year.
Most Expensive Diseases
The most expensive diseases were diabetes, at $26,971 per family, and neurological disorders like multiple sclerosis, which cost $34,167 on average.
The biggest expense was hospitalization, which caused half of the bankruptcies.
A Small Percent of the Population Contribute Most of the Costs
One percent of the population incurs 20 percent of health care costs. In 2009, about 3 million people spent more than $90,000 each. Older people spend that amount year after year. That compares to 50 percent of the population who spent just $236 per person.
Two-thirds of these high spenders are at least 55 years old. Almost 25 percent are age 75 or older. Many have lost the ability to take care of themselves.
Over 90 percent of high spenders have chronic illnesses. The most common illnesses are high blood pressure, diabetes, and high cholesterol. The prevalence of these diseases is increasing. That's one of the four reasons why health care needs to be reformed.
Prescription Drug Costs
Out of all the players in the health care industry, prescription drug manufacturers make the most profit. Doctor and hospital profit margins are just 3.7 percent. Health plans pocket slightly less, at 3.2 percent. That's partly because they are required to form separate companies for each state. They don't have enough bargaining power against national equipment and drug companies.
As a result, medical equipment manufacturers keep 9.5 percent of their income. Medical instrument and supply company profits are 12.5 percent. Drug companies make 20.8 percent. They say that's because they have to do so much research over years to develop an effective pharmaceutical.
Health care fraud is a huge drain on the economy. The health care industry loses between $60-$200 billion each year to fraud. That's 3-10 percent of the total health care industry.
Health care fraud is an economic drain for three reasons:
- It raises costs for insurance companies, which increases the premiums for everyone.
- It increases health care costs. Most people don't look at their itemized bills since the insurance company pays for it. Since there isn't price competition, medical providers can charge high prices for tests and other procedures. Often, doctors don't even know how much a procedure they are prescribing costs.
- When the costs of fraud are passed onto Medicare and Medicaid, it then creates an additional budget deficit. Fraud alone could add $14 billion to 30 billion to the deficit.
A small group of doctors and patients create most of the fraud. They bill you for a service you didn't receive. They overcharge you for a service you did receive. They also rename a procedure so that insurance covers it. Others give you a test you don't need, just to receive more from the insurance.
Patients perpetrate health insurance fraud as well. Patients can file false claims for services or medications they didn't receive. They can alter bills or even outright forge them. Finally, it is fraud if they file a false claim to someone else's insurance.
A large cause of fraud is the rising costs of health care itself. Patients who can't afford a life-saving procedure may be desperate enough to use a friend's insurance. Doctors who receive a small reimbursement from the health insurance company may tack on an additional procedure to cover their costs. Unfortunately, it's a vicious cycle. High health care costs lead to fraud which leads to even higher costs for everyone.
U.S. Health Care Rank
The World Health Organization said the United States has the 37th best health care in the world. It has the 34th highest life expectancy. But U.S. infant mortality is 47th. Medicaid pays for half of all births.
How It Affects You
It's helpful to have adequate insurance. In 2001, before the Obamacare exchanges opened, 21.3 percent of households reported having problems paying medical bills. In 2016, that had dropped to 16.2 percent. That's 13 million fewer Americans.
This study points out why it's important for you to look at health insurance like any other form of insurance. It's there to protect your financial assets. Therefore, look carefully at the deductibles, co-payments and out-of-pocket costs in addition to your monthly premium payments. Compare your existing plan, if you have one, to what you could otherwise get on the health care exchanges. If you don't have insurance, be sure to do the same when shopping for new insurance.
If you can easily afford a $5,000 or $10,000 deductible, then it makes sense to go for a lower premium payment. If that high deductible level will wipe you out, then paying more each month is worth it - even though it takes a bigger bite out of your cash flow.