Rising Health Care Costs

Health car costs

 The Problem | The Causes | Premiums | The Solutions

The Problem   

To make health care coverage more affordable, the nation must address the soaring cost of medical care that continues to increase at an unsustainable rate. There needs to be a much greater focus on the main drivers of medical cost growth: soaring prices for medical services, new costly prescription drugs and medical technologies, unhealthy lifestyles, and an outdated fee-for-service system that pays for volume rather than value.

More than one-sixth of the U.S. economy is devoted to health care spending and that percentage continues to rise every year. Regrettably, our system is not delivering value commensurate with the estimated $2.7 trillion spent annually on health care. Experts agree that about 20 percent to 30 percent of that spending – up to $800 billion a year – goes to care that is wasteful, redundant, or inefficient. 

Rising health care costs punish our nation on multiple fronts. For families and seniors, the soaring cost of medical care means less money in their pockets and forces hard choices about balancing food, rent, and needed care. For small businesses and Fortune 500 employers alike, they make it more expensive to add new employees, more difficult to maintain retiree coverage, and harder to compete in the global economy. For federal, state, and local governments, rising health care costs lead to higher Medicare and Medicaid costs, and funding cuts for other priorities, such as infrastructure, education and public safety. 

The net results of rising health care costs are far-reaching and ominous: higher costs for health insurance, the fraying of the nation’s safety net, an erosion in our global competitiveness, and long-term fiscal insolvency.

While the health reform law makes important strides in expanding coverage, much more is needed to rein in the rising cost of health care.

The Causes 

There are many causes of higher health care costs and spending. These causes include higher prices for medical services, paying for volume over value, defensive medicine, use of new technologies and treatments without considering effectiveness, and a lack of transparency of information on prices and quality. There is also evidence that provider consolidation is having a significant upward pressure on health care costs. The causes of higher health care costs and spending are not simply or easy to solve, but they must be addressed or the impact will be severe.   

    Health Care Costs and Premiums 

    Growth in premiums has tracked directly with the growth in underlying medical costs. Thus, as health care costs increase, so do premiums.

    Expanding coverage to new populations, new taxes and fees, broader benefit requirements, and the cost of health care services all factor into health insurance premiums. Moreover, these complex factors and provisions will affect individuals in different ways depending on their current coverage, location, age, and income level. Young, healthy males could see substantial increases due to the combination of these reforms while older, less healthy individuals could see rate reductions.

    To learn more about the most influential factors that go into premiums, click here.

    The Solutions  

    Reducing the rate of growth in health care costs requires a collaborative, inclusive, and bipartisan approach. While there is no simple formula for lowering the growth in health care costs, stakeholders have long recognized that there are many areas where common ground can be found. 

    Health plans are playing an important role in lowering health care costs. Health plans are partnering with providers to create innovative, high-value payment systems to reward value and quality over volume. Health plans are also empowering patients with new coverage options that focus on high-performing providers and key tools like care coordination and case management for individuals with chronic conditions.

    Other strategies for reducing health care costs include promoting prevention and healthy living, improving patient safety, and promoting transparency on medical costs and quality, and reducing health disparities.

    These types of approaches are helping to move the nation away from the broken and unsustainable fee-for-service system toward a health care system better suited for the 21st century. 


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    Latest Resources

    How Much Does it Cost? Health Plan Tools Empowering Consumers with Provider Price Information - [PDF]

    Fact Sheets/Issue Briefs/Talking Points | Center for Policy and Research | 08/25/2015

    Specialty Drugs—Issues and Challenges (ePub)

    AHIP Specialty Drugs E-Pub:  Summarization of the Specialty Drugs issue brief that explores recent trends in the specialty drug market, highlights some of the innovative strategies health plans are adopting to control costs, and recommends additional policy solutions to further promote high-value, high-quality care.

    Fact Sheets/Issue Briefs/Talking Points | Policy and Regulatory Affairs | 07/08/2015

    Health Plan Networks and Specialty Hospitals

    Provider networks have been a mainstay of private health insurance coverage for more than 35 years – providing consumers with access to a broad range of hospitals, physicians, and other health care providers along with financial incentives for members to obtain care within the plan’s provider network.  Virtually

    Fact Sheets/Issue Briefs/Talking Points | 07/01/2015

    Impact of Hospital Consolidation on Health Insurance Premiums

    This study demonstrates statistically significant positive correlations between health insurance premiums for coverage purchased on some Federally-facilitated and State-based Exchanges and the level of hospital consolidation.

    Fact Sheets/Issue Briefs/Talking Points | 06/19/2015

    Escalating Prescription Drug Costs - [PDF]

    Infographics | Strategic Communications | 06/08/2015

    New Report Shows Higher Levels of Hospital Concentration Associated with Higher Insurance Premiums in California

    A new report examining the impact of hospital concentration and premiums in California provides clear evidence that consumers living in regions with many hospital competitors have substantially lower premiums compared to those in regions with highly consolidated hospital markets. The analysis, commissioned by America's Health Insurance Plans (AHIP), offers a first look at the influence of hospital concentration on the cost of coverage in the new Exchange marketplace.

    Press Releases | Strategic Communications | 01/27/2015

    Hospital and Provider Consolidation: Negative Impact on Affordability for Consumers (ePub)

    There are a number of private sector and public/private initiatives underway to address affordability by lowering or constraining the growth of the health care costs faced by consumers. These initiatives involve health plans and health care providers, and range from the incremental to the potentially transformational.

    Fact Sheets/Issue Briefs/Talking Points | 10/16/2014

    A Roadmap to High Quality Affordable Health Care for All Americans (ePub)

    This document reviews current research outlining the key drivers of health care costs and advances a new policy framework for bending the cost curve and improving the quality of patient care.

    Reports/Research/White Papers | Strategic Communications | 12/17/2013

    Innovations in Medication Therapy Management

    This report describes trends in the medication therapy management (MTM) programs being conducted by America’s health insurance plans and provides details about 16 companies’ MTM initiatives for a variety of patient populations. 

    Research | Center for Policy and Research | 12/17/2013

    AHIP Board of Directors Outlines Strategies for Reducing Health Care Costs, Implementing Payment Innovations

    A new statement from America’s Health Insurance Plans’ (AHIP) Board of Directors recommends a series of strategies to bring down costs and make health care coverage more affordable.

    Press Releases | Strategic Communications | 04/30/2013

    Bringing Down Health Care Costs - [PDF]

    The AHIP Board of Directors released a statement recommending a series of strategies to bring down costs and make health care coverage more affordable.

    AHIP Board of Directors Statements | 04/30/2013

    Comprehensive Assessment of ACA Factors That Will Affect Individual Market Premiums in 2014

    A new report from Milliman, Inc. helps explain how the Affordable Care Act’s (ACA) coverage expansion, new benefits, and market reforms will impact individual market health insurance premiums in 2014. The report highlights how some provisions will increase premiums while others will make health care coverage more affordable for consumers. The focus of this report is to highlight the broad range of changes happening in the marketplace and the wide variation in impact that is likely to occur.

    Reports/Research/White Papers | Strategic Communications | 04/25/2013

    AHIP Health Care Cost App Recognized with Two Pollie Awards

    For taking the guessing game out of the health care cost debate,America's Health Insurance Plans' (AHIP) U.S. Health Care Spending 101 iPad app was recognized by the American Association of Political Consultants (AAPC) with two Pollie Awards, the industry's highest honors for political advertising and communications.

    Press Releases | Strategic Communications | 04/15/2013

    Strengthening Affordability and Quality in America's Health Care System

    In an effort to improve both the affordability and quality of health care in America, key health care stakeholders from the insurance, hospital, physician, business, and consumer sectors—America’s Health Insurance Plans (AHIP), Ascension Health, Families USA, the National Coalition on Health Care, and the Pacific Business Group on Health—worked together to reach consensus about what is needed to control costs and improve quality.

    Reports/Research/White Papers | 04/11/2013

    New AHIP Report in AJMC Highlights Rising Prices for Hospital Services, 2008-2010

    A new study published in the March issue of the American Journal of Managed Care (AJMC) provides new data on trends in hospital prices across the country.

    Press Releases | Strategic Communications | 03/18/2013

    Trends in Inpatient Hospital Prices, 2008 to 2010 - [PDF]

    Unadjusted inpatient hospital prices per admission grew by 8.2% per year from 2008 to 2010 for the commercially insured population (under age 65 years) in the MarketScan data set. We estimate that approximately 1.3 to 1.9 percentage points of the growth in prices can be attributed to increased intensity per admission. Thus, we estimate that intensity-adjusted price increases ranged from 6.2% to 6.8% annually in the 2008-2010 period. Price levels and trends varied considerably across admission types, states, and localities.

    Reports/Research/White Papers | Center for Policy and Research | 03/18/2013

    Innovations in Medicaid Managed Care: Highlights of Health Plans’ Programs to Improve the Health and Well-Being of Medicaid Beneficiaries

    In this report—an update to AHIP’s 2005 Innovations in Medicaid Managed Care book—we provide details about 17 health plan initiatives dedicated to improving the health and well-being of Medicaid beneficiaries.

    Research | Center for Policy and Research | 03/04/2013

    New Report Examines Physician Out-of-Network Charges

    A new report from America’s Health Insurance Plans (AHIP) highlighting data collected by Dyckman & Associates shows that some physicians who choose not to participate in health insurance networks are charging patients fees that are 10 times – and in some cases, nearly 100 times – Medicare reimbursement for the same service in the same geographic area.

    Press Releases | Strategic Communications | 02/01/2013

    Survey of Charges Billed by Out-of-Network Providers: A Hidden Threat to Affordability

    To make health care coverage more affordable, the nation must address the soaring cost of medical care that continues to rise at an unsustainable rate. Research shows that higher health care spending is a result of higher health care prices.

    Research | Center for Policy and Research | 01/01/2013

    AHIP Files Amicus Brief on Impact of Hospital Consolidation


    Press Releases | Strategic Communications | 11/29/2012

    AHIP Launches New Health Care Spending iPad App

    AHIP has released a new iPad app, U.S. Health Care Spending 101, that provides policymakers and stakeholders with comprehensive health care spending data in an easy-to-use digital format

    Press Releases | Strategic Communications | 10/29/2012

    U.S. Health Care Spending 101 iPad App

    AHIP’s new iPad app, U.S. Health Care Spending 101, is an interactive guide for examining the history, components, and sources of spending for the largest sector of the American economy.

    Strategic Communications | 10/26/2012

    AHIP Statement on National Health Expenditure Data

    AHIP released a statement from its CEO and President Karen Ignagni on the release of the National Health Expenditure data.

    Press Releases | Strategic Communications | 01/09/2012