The Shocking Reason Why Health Insurance Premiums Continue to Rise

This year, I had the opportunity to speak at TEDxDetroit. At first, I struggled with what to say, other than I’m grateful for the platform and the opportunity. But, I realized that it was important to discuss the outrageous increases in health insurance costs for the average American family.

The Way Rising Health Insurance Costs Affect the Take Home Pay of Americans

The average family in the United States paid about $3,500 for employer-sponsored health insurance coverage in 2009 and that amount of money ballooned to about $6,000 in 2019.

What’s even worse is that employers were spending $9,860 per employee in 2009 to administer those health insurance plans, and in 2019 they’re paying $14,561 for those same health insurance plans.

All of this money spent on Health Insurance costs is a huge detriment for our national economy and for the paychecks of individual Americans. Imagine if health insurance costs were the same today as they were in 2009, each American family would have an extra $10,000 in wages from their employer. Instead, that extra $10,000 is spent on health insurance costs.

The Reason Why Health Insurance Costs Continue to Rise in the United States

Let’s start by discussing the 80/20 rule in the Affordable Care Act (ACA). The ACA set forth some well-intentioned provisions. Here’s what HealthCare.gov has to say about this 80/20 rule:

The 80/20 Rule generally requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs. The 80/20 rule is sometimes known as Medical Loss Ratio, or MLR.

According to the American Economic Association: “Rather than lower premiums, insurers searched for other ways to come into compliance. Initially, there were efforts to relabel some administrative costs as “quality improvements”—like lobbying to count spending on nurses’ hotlines as part of the 80 percent.  But the easiest route to meeting the requirement was simply to let medical claims increase. That companies opted to do this, instead of lowering premiums, didn’t come as a surprise”

Within that 20% of administrative, overhead, and marketing costs, insurance companies have their profit margin. Therefore, the more money spent on insurance claims, no matter how bogus, the larger the profit margin becomes for the insurance companies.

Increased Health Care Spending on Inflated Health Insurance Claims

This brings me to the glaring example of inflated health care costs based on questionable medical care and out-of-network billing. In December 2019, I heard about the $25,865 throat swab that Blue Cross Blue Shield of Minnesota paid for. The gist of the story, from NPR’s Bill of the Month series, is that a woman in Manhattan went to a doctor for a sore throat, received a throat swab, and was given an antibiotic.

Because the throat swab was processed by an out-of-network lab, the cost of the throat swab was $25,865.

First of all, a good primary care doctor can develop a trusting relationship with a patient, obtain a history of the illness, and perform a physical exam for 99% of viral or bacterial throat infections or cases of pharyngitis. In other words, a throat swab is NOT NEEDED in 99% of pharyngitis cases.

Second, the fact that the insurance company paid for this $25,865 throat swab is insane. The reasonable cost for a throat swab like this might be $100 to $500, no $25,865. If I ran the insurance company, I would be calling the out-of-network lab’s bluff here and they’d be paid a reasonable $500 at most.

However, as discussed above, the more money insurance companies spend on health care or medical losses, the more profits they’re able to rake in due to the 80/20 rule in the affordable care act.

That’s why we’ve seen our health care spending increase from $2.5 Trillion in 2009 to $4.01 Trillion in 2020.

We must end these insane health insurance practices before it further affects our earnings and our Nation’s economy.

Thanks for reading and thanks for watching my TEDxDetroit talk,

-Dr. Paul Thomas with Plum Health DPC in Detroit