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Tuesday, June 29, 2010

Health insurance 101: Costs are rising. What’s a consumer to do?

[First in a series of blog posts to help you better understand health insurance and how recent changes affect you.]
Let’s face it: Health insurance can be a dry and complicated business. And it’s not easy deciphering the various concepts, jargon, and not-exactly-household words that define the business of insuring your health.
But your health insurance is important. And with health care reform, ever-rising costs for care and other trends that are transforming the industry, it’s a good idea to keep yourself abreast of what the changes mean to you.
That’s why we’ve put together this guide to help you understand what’s happening in health insurance, why it’s happening and what it means for you.
  My health care costs are going through the roof. What gives?
Overall health care spending is indeed rising – to $2.5 trillion in 2009 or 17.3 percent of the economy, according to the Centers for Medicare and Medicaid Services. It’s projected to balloon to $4.5 trillion by 2019, or more than 19 percent of Gross Domestic Product.
Many factors are driving up benefit costs. In general, pricing is based on increasing demand for health care and the ready supply of providers able to meet the demand.
Demand is rising in part because of changing population demographics and treatment options. The U.S. population is aging, with seniors spending more on health care than children or working-age adults. Personal health habits or traits such as smoking, obesity and lack of exercise are also increasing the rates of chronic conditions like diabetes and heart disease. That’s leading to more frequent doctor visits and higher use of more costly medical tests, procedures and hospital stays.
In fact, almost half of all health care spending is used to treat just 5 percent of the population.
On the supply side, health care manufacturers and other suppliers constantly invest in research and development, and providers continuously invest in new technologies to improve their capabilities for treatment. All of these expenses are passed along to the consumer and result in higher costs for care.
Lastly, salaries for health care professionals are competitive and may be higher in regions where, for example, registered nurses are in short supply. Hospitals in Michigan are also providing more uncompensated care due to the downturn of the economy and the increasing numbers of uninsured patients that they treat. All of these factors are passed along in the end to consumers. 

Next week: Rising health care costs are spurring changes in health plan designs

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