Why the Cost of Health Care in the US is Soaring

While people have been quick to blame health insurers for the skyrocketing cost of health care in the U.S., the reality of the situation is more nuanced, and other factors have played a much bigger role in driving up costs. We explore some of those less-reported drivers of the high cost of health care in the country. 

For example, the law caps the rates levied by medical facilities when treating patients on Medicare. However, private insurers aren’t constrained by these laws as they negotiate their rates directly with the health care facilities serving their clients. In order to be more appealing to patients on private insurance policies, hospitals are racing to upgrade their facilities. Unfortunately, the cost of these upgrades later gets passed on to patients because someone has to meet that cost. 

Since patients who aren’t sensitive to prices gravitate towards facilities that have lavish amenities, prestigious reputations and state-of-the-art equipment, the competition to attract these patients has created a race to upgrade hospitals, and the high cost of those upgrades trickles down to end users of these facilities. 

Another key reason for the overall increase in health care costs is the fact that Americans are generally consuming more medical services. To put this into context, as someone becomes more wealthy, their consumption of food has a limit on the extent to which it can change. In contrast, as one earns more disposable income, the range and cost of the medical care they opt for can change dramatically. 

For example, patients now seek advanced medical procedures in fields like cardiology, orthopedics and fertility care. These tend to be very expensive (consider the cost of a complete knee replacement or bypass surgery on the heart). With more people seeking these services, the overall per capita expenditure for the country has shot up. 

It should be noted that medical care has advanced significantly over the past decades. For example, HIV infection is no longer looked at as a “death sentence” since advancements in treatment mean patients can live for almost as long as individuals without the infection. Similarly, cancer care has also advanced and many malignancies can now be managed using advanced treatment options like immunotherapy, precision surgery and novel drugs. The catch is that these treatments are very expensive and they drive up the proportion of GDP going to medical care. 

Advancements in medical care have been so impactful that between 2000 and 2022, cancer mortality has reduced by 29% while mortalities linked to HIV/AIDS have dropped by a staggering 73%. 

One last illustration will cement the view that increased use of medical care plays a big role in driving up costs. Recent development of weight loss drugs (GLP-1 drugs) attest to this fact. Close to 50% of Americans show interest in using these drugs and in 2023 their average cost was $8,412. Naturally, the high cost of these medications will exert upward pressure on health insurance costs. 

All in all, the premiums charged by entities like Astiva Health are influenced by many factors and it would be inaccurate to blame rising insurance costs on just profit-seeking companies. 

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