The math behind health care’s crazy inflation
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It’s easy to understand why the price for health insurance premiums has outpaced inflation by so much in the last few decades.
“There are more treatments, more medications, more therapies,” says Kathy Hempstead of the Robert Wood Johnson Foundation. “There’s just more healthcare services that can be applied to any particular clinical situation.”
The numbers are striking. In 1996, the average family premium ran just shy of $5,000. Adjust that $5,000 for inflation, and today it’s about $7,500. But healthcare premiums are a different story. The cost was a little more than $16,000 for a family, as of last year.
Harvard economist David Cutler says there’s nothing wrong with spending a lot of money on healthcare, as long as you are getting what you pay for.
“People want longer life. They want healthier life,” he says. “The unfortunate truth is we are spending a lot that is not contributing to that.”
When Cutler says a lot, he’s not playing around. Many economists, Cutler included, say as much as $1 trillion of all healthcare spending a year is wasteful – that’s about a third. But when it comes to premiums, which third are we talking about?
“Healthcare is probably unique in that it is so difficult to tell whether something is worth it or not,” Cutler says.
One thing we do know is that as premiums have climbed, people have paid more out-of-pocket. Ironically, Hempstead says, high prices should help make sure we’re getting a better deal.
“One of the things that does is it makes consumers look for value and to get providers to be as efficient as they can be and provide a lower cost service,” she says.
Federal health officials say in the last five years, premium prices continue to rise, but at about half the rate they were previously. No one knows for sure what’s behind that. But pretty much everyone agrees when the first few thousand dollars of healthcare comes out of our wallets, we’re going to do a better job making sure it’s not for nothing.
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