Health care costs are rising. According to a 2017 study published in the Journal of the American Medical Association (JAMA) health care spending in the United States rose nearly a trillion dollars from 1996 to 2015.

The JAMA study tried to establish how 5 key factors – population growth, population aging, disease prevalence or incidence, medical service utilization and service price and intensity – were associated with health care increases over time. The authors found that service price and intensity, including the rising cost of pharmaceutical drugs, made up more than 50% of the increase. Other factors, which comprised the rest of the cost increase, varied by type of care and health condition. 

Growing and Aging Population

Simply put, the more people that seek health care and the older those people are, the costlier health care becomes. Therefore, it’s not surprising that 50% of the increase in health care spending comes from increased costs for services, especially inpatient hospital care. Nor is it a shock that the two next highest factors when it comes to increased health care spending are population growth (23%) and population aging (12%).

Increase in Chronic Illnesses

The authors of the JAMA study pointed to diabetes as the medical condition responsible for the greatest increase in spending over the study period. The increased cost of diabetes medications alone were responsible for $44.4 billion of the $64.4 billion increase in costs to treat that disease. After diabetes, conditions with the greatest increase in costs were low-back and neck pain ($57.2 billion), high blood pressure ($46.6 billion), high cholesterol ($41.9 billion), depression ($30.8 billion), falls ($26 billion), urinary disease ($30.2 billion), osteoarthritis ($29.9 billion), bloodstream infection ($26 billion) and oral disease ($25.3 billion).

Increased Ambulatory Costs

Ambulatory care, including outpatient hospital services and emergency room care, increased the most of all treatment categories studied. Outpatient costs rose from an annual cost of $381.5 billion to $706.4 billion over the course of the JAMA study, while emergency department costs across all health conditions, rose 6.4% over the same time period.

Rising Health Insurance Premiums

For most people, the rising cost of health insurance premiums lies at the center of concerns about rising health care costs. According to the National Conference of State Legislatures (NCSL), the average annual premium for family health care coverage rose nearly 5% in 2018 to $19,616. The average increase in premium costs in 2018 for people on a private plan or a health care exchange was $201. The two most-cited reasons for these increases were government policy and lifestyle changes.

Government programs like Medicare and Medicaid have increased overall demand for medical services, resulting in higher prices. In addition, as noted above, increases in the incidence of chronic conditions like diabetes and heart disease have had a direct impact on increases in the cost of medical care since the two diseases alone are responsible for 85% of health care costs and almost half of all Americans have a chronic illness.

Higher Out-of-Pocket Costs

Higher insurance premiums are only part of the picture. Americans are paying more out-of-pocket than ever before. A shift to high-deductible health plans (HDHPs) that can impose out-of-pocket costs (including deductibles, copays and coinsurance) of up to $13,300 per family have added greatly to the cost of health insurance. In fact, between 2006 and 2016, out-of-pocket costs for Americans with employer-sponsored health coverage rose faster than the costs that their insurers paid.

Inefficiency and Lack of Transparency

Thanks to a lack of transparency and underlying inefficiency it’s difficult to know what the actual cost of health care is. Most people know the cost of care is going up but with few details and complicated hard to decipher invoices, it’s not easy to know what they are paying for. The Wall Street Journal recently reported about one hospital that discovered it was charging more than $50,000 for knee-replacement surgery that only cost between $7,300 and $10,550. If hospitals don’t know the true cost of a procedure, patients may have difficulty shopping around. When it comes to overall transparency, a recent New England Journal of Medicine (NEJM) survey showed that only about 17% of care professionals believed their institutions had either “mature” or “very mature” transparency. (L9, L10)

Patients Avoiding Care

Rising costs have created another casualty – people who skip medical care altogether. They do so not because they are afraid of doctors; instead, they're afraid of the bills that will accompany the care. A poll by the West Health Institute and NORC at the University of Chicago revealed that over the past year 44% of Americans refused to go to a doctor due to cost concerns. About 40% of those surveyed said they skipped a test or treatment for the same reason. In many cases, those who refuse treatment even have medical insurance. The result of delaying or avoiding treatment is obvious – eventually the care required will be even more expensive.

Bottom Line

Each of the factors mentioned here are responsible for some part of the reason health care costs are rising although none is solely responsible. Increasing costs for medical services, caused by both a growing and aging population play a large role but so do other factors like the growing number of people with chronic disease, increased costs for outpatient and emergency room care, higher premiums and out-of-pocket costs. These factors are exacerbated by inefficiency and lack of transparency in the world of medicine.

Solutions being tried include employer-sponsored wellness programs, especially those that target chronic illness. Other solutions include increased reliance on medical technology to remove inefficiencies and attempts to achieve greater transparency to help lower costs. For individuals, the primary way to reduce cost is to maintain a healthy lifestyle and to have regular checkups to avoid the development of long-term health problems.