Health Care Costs Keep Rising

By Amir Zaman,
WEA Insurance
employee benefits specialist

May 1998

Death and taxes may be the only things that are certain in life, but rising health care costs aren’t too far down the list. A number of factors are behind increasing health care costs. While we don’t have room here to get into all of those factors, we used four different graphs* (below) to give you a sense of how some of the things combine to push up the cost of health care.

The first two graphs are fairly straightforward. They show increases in the cost of a medical service and of prescription drugs over the last few years. While we’ve used only two examples, the charges for most medical services and procedures have been rising just as steadily.

Of course, like anything else you buy — gas, food, clothing — you would expect that prices for medical services will be higher next year. However, there’s another factor that comes into play when we talk about medical services. That factor is utilization, which refers to the number of medical services people use. In general, not only is the cost of each service going up, people are using more services.

If you’re favorably disposed toward math, you can probably guess that a rise in costs, taken together with an increase in the number of services, has a compounding effect on health care costs. Compounding, as all the financial market wizards are eager to tell you, is very beneficial when it’s working on your retirement money. It means your money is growing in leaps and bounds. Of course, growing in leaps and bounds isn’t what you want to happen to your health care costs.

The third graph (Prescriptions per subscriber per month) is a good example of increasing utilization. It shows that in each of the last five years, people had more prescriptions filled than the year before. The last graph shows that the average cost of prescriptions for each subscriber has been going up. This increase would be less were it not for the fact that both usage and price are going up. The combination — increase in cost of services and increased use of services — packs quite a punch.

*These graphs are based on WEA Insurance claims data.

Posted May 6, 1998