Healthcare costs

Why Health Care Costs are Rising… and How to Reduce Your Cost of Healthcare

In 2019 the cost of healthcare rose to $3.8 trillion, or $11,582 per person, per year (if you include children). Healthcare costs is a very broad term, and means different things to different people. To the average American, it means how much they spend on out-of-pocket costs. To hospitals and doctors offices, it means the cost of supplies, equipment, and wages. To insurance companies, it means the amount that they pay for healthcare services. To politicians, it means how much government subsidies pay for coverage and services (like Disability, Medicare, and state Medicaid). Here is a rundown of all the different healthcare total costs in the United States.

Health Insurance Premiums (these are in addition to the $3.8 trillion)… cost almost as much as health care expenses,

Private health insurance plans annual premiums increased to $1.2 trillion in 2019. On a per-enrollee basis, spending for private insurance premiums was $5,927 in 2019.

Medicare private plan premiums increased to $799.4 billion in 2019. On a per-enrollee basis, spending for Medicare was $13,276 in 2019. In 2018 there were 144.3 million taxpayers that paid an additional $308 billion per year to Medicare out of their paychecks, or $2,134.44 per person, per year, on average. Businesses also paid $308 billion, totaling medicare tax to $616 billion for 2018.

Medicaid funds from state and federal governments totaled $2.1 trillion for 2019.

Health insurance premiums$1.2 trillion
Medicare supplemental or replacement insurance plans$799.4 billion
Medicare tax$616 billion
Medicaid funding (nation-wide)$2.1 trillion
Total health insurance premium costs for 2019:$4.7154 trillion
Minus total health care spending from insurance sources:$3.8 trillion
Assumed insurance companies profit:$915.4 billion
Total costs of health insurance premiums vs. how much insurance actually pays (and why they are so profitable)

Breakdown of the $3.8 trillion Total Health Care Costs for 2019

We broke down the overall healthcare costs for 2019, we will update when 2020 and 2021 information becomes available.

  • Out-of-Pocket expenses were $406.5 billion per year.
  • Hospital care expenses were $1.2 trillion in costs in 2019.
  • Physician and Clinical Service expenses were $772.1 billion in 2019.
  • Retail Prescription Drugs expenses were $369.7 billion in 2019.
  • Other Health, Residential, and Personal Care Services (ambulance providers, mental health, substance abuse facilities, etc) expenses were $193.6 billion in 2019.
  • Nursing Care Facilities and Continuing Care Retirement Community expenses were $172.7 billion in 2019.
  • Dental Services expenses were $143.2 billion.
  • Home Health Care expenses were $113.5 billion.
  • Other Professional Services (physical therapy, optometry, podiatry, chiropractic, etc.) expenses were $110.6 billion in 2019
  • Other Non-durable Medical Products (over-the-counter medicines, medical instruments, and surgical dressings, etc) cost $82.1 billion in 2019.
  • Durable Medical Equipment (contact lenses, eyeglasses, hearing aids, etc) cost $57.6 billion in 2019.
2019 Healthcare Expenses Pie Chart
2019 Total Healthcare Expenses Breakdown

Average lifetime Healthcare Expenses

One recent study in 2004 (using BCBS information) found that the average lifetime total health expenditures is $316,600, with a variation in gender (because on average women live longer than men). $361,192 for women, and $268,679 for men. If you were to divide the total medical costs by the average life expectancy of 73 years, the annual cost would average $4,336.99. The study also found that 1/3 of healthcare spending incur during the middle ages, and half of the expenses are incurred during senior years. In 2004, heath care costs averaged $6,280 per person ($1,943 more than the lifetime average). If a person were to put the average cost of $6,280 per year into a mutual fund with 10% average rate return (similar to a health savings account), that person would save $251.2 million dollars by the time they reach 85 (which was the lifetime basis for the study). Adjusting the $316,000 for inflating health care costs (4.74% per year), in 85 years the lifetime expenses would be $16.26 million, leaving $234.94 million as an inheritance. In fact, that person could save the estimated lifetime expenses of $16 million and stop contributing after 33 years (by middle ages if starting to contribute as an adult).

Healthcare costs
Compounding interest demonstrating a $6,280/year contribution ($523.33/month), for a self-paying HSA mutual fund account (assuming an average 10% rate of return) in 33 years, leading to hundreds of millions by retirement age.

Healthcare is a business… a profitable business

The first thing to remember is that healthcare is a business, and physicians are under pressure of increasing their RVU’s (relative value units). Physicians get paid more money by increasing their specialty skills and performing additional services. For example, say one family physician leaves an office and a new physician replaces them. Each patient of that physician will need a new patient office visit. If Patient A has a simple medical history (no chronic diseases, and no other health issues), and gets a new doctor in their office, a new patient office visit allowed amount for payment by insurance is $102.89. Now, say that Patient B has a complex medical history (has a history of cancer, multiple surgeries, diabetes, chronic kidney disease), their new patient office visit allowed amount by insurance is $292.04. Patient A only wanted to go to the doctor to have a mole looked at. After gathering the family history of Patient A, the physician does a focused exam on the problem, because there is no need for any other services on a young healthy individual. The physician looks at the mole, and determines no intervention is necessary, and the insurance allowed amount for the exam is $66.42. Patient B is complaining of abdominal discomfort. Patient B will need a comprehensive exam by a physician requiring a high level of medicinal decision-making skills, due to their health conditions, chronic conditions, and medical history. The insurance allowed amount for that exam is $270.01. Do you see how office visits can vary in cost, and it is nearly impossible for medical office receptionists to be able to give a price for an office visit (especially since health information is private and protected by HIPAA).

Medical Billing and Coding departments are incentivised to promote profits

Hospitals, emergency departments, urgent cares, family physicians, primary care physicians, and other large health services providers often have an entire medical billing and coding department. These departments are usually incentivized to bill and collect as much as possible from various insurance health plans. They will comb through medical charts to find and bill for anything and everything they legally can. This helps with their own paychecks, and often helps the doctors with their pay. They will even contact the doctors to alter their charts to add or edit their notes, so that they can bill or code for better paying CPT codes. Hospital administrators also allow for higher prices, knowing insurance companies will pay a percentage. Medical billers’ and coders’ goal is to get as much as possible from the evil insurance companies, after all, that is why public health pays all of that money for those health insurance premiums. They don’t always see that health insurance companies don’t pay most of the bill, and that a large portion of the medical bills gets transferred to the patient. The health insurance companies working as the middle man between healthcare providers and patients, are the primary reason for the increase in medical care spending.

It’s ok to self-pay for health care

As of 2019, there is no federal penalty fine for being uninsured or underinsured in healthcare. A few states have their own penalty, however, they also have exemptions. It is also illegal for medical services facilities to deny care because of the ability to pay. The out-of-pocket maximum when using insurance now $8,550 for individuals and $17,100 for families, and catastrophic plans often have that limit as their deductible. The issue with catastrophic health coverage plans is that once a healthcare facility submits a claim to the insurance company, their negotiation abilities to lower costs of out-of-pocket expenses is removed. Self-pay patients (those that pay for medical expenses themselves) are often cheaper for patients, and most facilities will set up interest-free payment plans. As of 2021, the Affordable Care Act offers health insurance on the federal government website, the cheapest healthcare marketplace plan (catastrophic bronze plan) has a $6,900 deductible which is the out-of-pocket maximum, and has premiums costing $213.64 – $730.33 per month ($2,563.68 – $8,763.96) depending on age and tobacco use. Meaning, if you incur $6,800 in medical costs for the year you could will pay $9,363.68 – $15,563.96, and will have absolutely NO NEGOTIATING power with the hospital. Now if you do not use health insurance and incur the same $6,800 medical bill, you will likely be able to negotiate that down by at least 25% to $5,100 by setting up an interest-free payment plan with the health care system. You could even get the bill down to $3,400 if you can pay that in a lump sum, same day (don’t put it on a credit card). Another statistic to take into consideration is the average medical costs per year for individuals under 44 is $2,543, making the health insurance premium costs of $2,563.68 – $8,763.96 even more ridiculous, because the higher premiums are what you pay whether you use it or not.

Physicians are unaware of the cost of the tests or procedures they are recommending

Another contributing factor to rising healthcare costs is due to poor physician recommendations. One example includes a 95 year old normally healthy patient, being evaluated for new onset shortness of breath with exercise. A chest x-ray showed a mass in a lobe of the lung, which the doctor suspects is cancerous. The doctor recommends the patient go for a biopsy of the tumor, to see what stage the cancer is. The patient doesn’t want to undergo the procedure, which requires sedation. However, the patient’s daughter want to know the stage of the cancer, so that she knows how much longer the patient is expected to live. Unfortunately, the patient’s daughter expects results to tell her a specific number of months before the patient will die. At this point the physician should educate the patient and his daughter that staging the tumor can only tell if there is months, years, or decades before the cancer is terminal. But to keep the daughter happy, the doctor and patient agree to the procedure, costing the patient an additional $14,634 which medicare usually will cover 80%, leaving an out-of-pocket expense to the patient of $2,926.80. $2,926.80 if there are no complications leading to a hospital stay (which is unlikely as a 95 year old’s lungs are not as elastic as a younger healthy individual, and the risk for a pneumothorax is very likely. But let’s say there are no complications, the 95 year old patient just paid almost $3,000 to find out that his 5 year survival rate is 25% due to the lung tumor! But the doctor made some money, so he is happy, and the family member got her vague answer, so she is happy, so all is well, right? This is why health care spending is out of control!

What can you do to lower your healthcare costs?

  • Stay healthy! This one seems obvious, but living a healthy lifestyle and eating healthy will keep the medical bills at bay. Don’t smoke, don’t drink excessively, don’t do drugs, get a yearly checkup with labs. Labs like a CBC, BMP, Cholesterol panel, and A1C are a cheap way to see how all of your organ systems are performing, and if you need to make adjustments in your diet. Prevention is key!!
  • Ask your doctor about the pros and cons of testing or procedures BEFORE scheduling these appointments. If the tests won’t change your health outcome, or if you won’t change your lifestyle depending on the result, is it really necessary?
  • Do the screenings at your recommended age. Those that are at high risk for certain cancers (usually because of family history), should be screened at an early age. It is not unheard of to do a mammogram or colonoscopy at age 30 if necessary, catch that tumor at stage 1 instead of stage 3 or 4! It won’t only save you money on medical bills, but it can save your life!

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