Why is Health Insurance so Expensive

Health care insurance costs have risen for Americans more than 120% since 2000. What does that mean in dollars and cents?

The average family of four paid $12,700 for an employer-based insurance plan in 2008: An increase of more than $3,400 over 2007. (1) Employer costs for the insurance plans rose 130% between 1996 and 2006. (2)

The following reasons explain why:

:: Individual Coverage

The United States spent 17% of its gross domestic product (GDP) on health care. Countries with national health care systems average spending 10%. (3) With little governmental regulation of insurers’ spending and premiums, the US spends 4.3 times more money on health care than national defense. (4)

:: Disproportionate Increases in Income

Employers increased spending on wages and benefits only 42%. (5) Since employee pay did not rise at the same rate as insurance premiums, the cost represents a higher portion of the insured’s salary.

:: Increased Hospital Costs

In 2006, Americans spent $329.2 billion on hospital stays. 132 people of every 1,000 are hospitalized each year. (6) 47% of the rising hospital cost can be attributed to more intense treatment during stays.

:: Disease and Treatment

Large increases in the number of Cesarean section childbirths and ensuing complications to mother and child, comprised the largest hospitalization cost increase. Blood transfusions were the most commonly preformed hospital procedure, showing an increase of 117% between 1997 and 2006. (6)

Hospitalization costs doubled in that time for skin, subcutaneous and blood infections, non-specific chest pain, degenerative joint disease, adult respiratory failure and back pain. Heart disease related conditions accounted for 19% of all hospitalization costs. (6)

:: Uninsured Americans

46 million Americans do not have insurance. (3) 50% of all bankruptcy filings are medical cost related, with average debt of $12,000 in out-of-pocket medical expenses. (7) These lost profits are spread to the paying consumers and insurance companies.

:: Technology

Advances in technology to raise health care quality are expensive. These costs are passed to the consumer through higher medical costs. With large increases in heart disease related hospitalizations, more intense treatment with advanced technology increases the cost of treatment. (6)

Americans spend more than $2 trillion per year on medical treatment. Insurance companies pay only a portion of medical expenses. To generate funds, they rely on insurance premiums. As the costs of health care rise, the premiums increase to cover the payments made to doctors and hospitals.


(1) The Henry J. Kaiser Family Foundation. Employee Health Benefits: 2008 Annual Survey. (http://www.nchc.org/facts/cost.shtml)
(2) Crimmel, B.L. Premiums, Employer Costs, and Employee Contributions for Private Sector Employer-Sponsored Health Insurance, Family Coverage by Firm Size, 19962006. Statistical Brief #230. January 2009. Agency for Healthcare Research and Quality, Rockville, MD. (http://www.meps.ahrq.gov/mepsweb/data_files/publications/st230/stat230.pdf)
(3) California Health Care Foundation. Health Care Costs 101 – 2005. 02MAR05. (http://www.nchc.org/facts/cost.shtml)
(4) Pear, R., “U.S. Health Care Spending Reaches All-Time High: 15% of GDP.” The New York Times, 09JAN04, 3. (http://www.nchc.org/facts/cost.shtml)
(5) United States Department of Labor, Bureau of Labor Statistics. Economic Cost Index: 30JAN09. (http://www.bls.gov/news.release/eci.toc.htm)
(6) Levit K (Thomson Reuters), Stranges E (Thomson Reuters), Ryan K (Thomson Reuters), Elixhauser A (AHRQ). HCUP Facts and Figures, 2006: Statistics on Hospital-based Care in the United States. Rockville, MD: Agency for Healthcare Research and Quality, 2008. (http://www.hcup-us.ahrq.gov/reports.jsp)
(7) Himmelstein, D, E. Warren, D. Thorne, and S. Woolhander, “Illness and Injury as Contributors to Bankruptcy, ” Health Affairs Web Exclusive W5-63, 02 February , 2005. (http://www.nchc.org/facts/cost.shtml)