Rising Health Care Costs

Health Care App

 The Problem | The Causes | The Solutions | Premiums | Related Issues 

“Health plans are playing a vital role in reducing the cost of care and improving value…”  

- Karen Ignagni, President & CEO, America's Health Insurance Plans 
Health Plan Innovations in Delivery System Reforms,  
American Journal of Managed Care 

The Problem   

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 an estimated 20 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 reduced funding on 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.

  Provider Consolidation 

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. 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. 

AHIP's Board of Directors has released a statement addressing the soaring cost of health care, outlining three key strategies for reducing health care costs:

  • Tackling Barriers to Transparency: "Action must be taken to eliminate barriers that prevent stakeholders from understanding how markets are (or are not) working. Increased transparency—with a concurrent focus on quality—will lead to greater awareness of the specific market dynamic and give consumers and purchasers a better line of sight into the drivers behind the growth of health care costs in their community as well as an understanding of the impact of dynamics such as provider consolidation." 
  • Facilitating Benefit Modernization: "Today, a range of legal, regulatory, or operational barriers often prevent plan innovations from being realized in local communities. To address these barriers, cost containment strategies must modernize these 'rules of the road' to ensure that innovative plan designs—aimed at decreasing costs while ensuring safe, high quality care—can thrive."  This includes re-evaluating scope of practice requirements, accelerating use of Health IT, promoting preventive care and wellness programs, promoting laws or regulations that support innovative delivery structures, and eliminating excessive network requirements that prevent plans from forming lower cost, high quality networks. 
  • Advancing Bold, Structural Reforms: "Strategies to address soaring health care costs need to include fundamental, structural changes in the health care system. Further, action needs to be grounded where health care is delivered today—at the state and local levels." A state-federal shared savings, or "gain-sharing," initiative could be implemented that would allow states to keep a portion of any health care cost savings they generate. "This would direct hundreds of billions in needed incentives to cash-strapped states, while at the same time bending the total cost curve and having a productive impact on the economy as a whole, as well as family, corporate, and government budgets." 

Health Care Costs and Premiums 

Rising health care costs are making health care coverage more expensive for individuals, families and employers.  Government data show that the growth in premiums has tracked directly with the growth in underlying medical costs.  Thus, as health care costs increase, so do premiums. 

The health care reform law also includes a number of changes that will impact the benefits people receive and the premiums they pay.  Covering pre-existing conditions, requiring a broader benefit package, and covering uninsured Americans who have gone without medical care will benefit millions of people while increasing the cost of health care coverage.  The new health insurance tax and other fees will also increase premiums.  Other provisions of the law will make health care coverage more affordable, including premium and cost-sharing subsidies and the transitional reinsurance program, which provides funds to help offset the impact of high-cost enrollees. 

The impact on specific individuals will vary significantly depending on their age, gender, location, health status, income level, and what coverage they have today.  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 all of these factors, click here.

Related Issues 

Follow the links below to learn more about rising costs, their impact on health insurance premiums, and what can be done to reduce the rate of growth in health care:

Latest Resources

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 | 02/01/2014

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

Fact Check: Provider Consolidation - [PDF]


Strategic Communications | 09/13/2013

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

Out of Network Charges Infographic - [PDF]

Infographics | 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

Provider Consolidation Infographic - [PDF]


Infographics | 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

The Rising Costs of Treatments Infographic - [PDF]

This infographic outlines the five most expensive treatments and the five fastest growing treatments by unit price in 2011.

Infographics | Strategic Communications | 09/25/2012

Rising Health Care Costs: What You Need to Know - [PDF]


Fact Sheets/Issue Briefs/Talking Points | Strategic Communications | 07/13/2012

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