By Colton Eva
Health insurance is a touchy subject for a lot of people. Premiums continue to rise right along with co-pays and deductibles. Things are getting so out of hand that people are beginning to wonder what on earth they are paying for. Some are finally coming to the conclusion that our health insurance model is unsustainable.
An honest look at the math suggests we cannot continue as-is indefinitely. At some point, the entire system must collapse under its own weight. Then what? The only remaining option is government funded healthcare vis-à-vis Canada, Europe, etc. It may sound good to people struggling to pay their health insurance premiums, but reality will be harsh when it eventually comes to fruition.
Life Before the HMO
When I was 11 years old, I was hospitalized for three weeks with a serious illness. That was followed by being laid up at home for three months. I remember my parents talking about how they would pay for my care. Fortunately, they had major medical. They only had to cover regular visits with the family doctor.
Back then, the HMO was brand-new. In fact, the Health Maintenance Organization Act of 1973 – the federal legislation that gave birth to the HMO – had only become law a few years earlier. HMOs were still the exception to the rule. Most people were like my parents. They had major medical to cover the big things and paid for everything else out of pocket.
I would argue that the HMO is the worst thing to ever happen to health insurance in America. It created a system of systemic inequities while incentivizing obscene price hikes. Ever since, healthcare costs have been rising unabated.
Rising Faster Than Inflation
With that background information, it is time to reveal the #1 reason our current system is unsustainable. It can be encapsulated in a single word: inflation. Simply put, health insurance premiums have historically risen faster than the rate of inflation. The difference in some years has been moderate while in other years it has been huge.
From 2002-2007, the rate of inflation was about 14%. Yet health insurance premiums increased by 51%. The difference was a bit more modest from 2007-2012. During that period, health insurance premiums rose 30% while inflation came in at 12%. The period from 2017-2022 was better still with inflation running at 17% and health insurance premiums increasing by 20%.
As for worker earnings, they have not kept pace with higher healthcare premiums. They have barely kept pace with inflation. Let us go back to 2002-2007. With inflation running at 14%, worker earnings barely exceeded inflation at 16%. But employee contributions to health insurance shot up 54%.
Could that explain why so many companies have made the switch to self-funded health plans? It seems reasonable. Third-party administrators like StarMed, out of Las Vegas, NV, are signing up more and more clients looking to offer decent health plans without busting their budgets or bankrupting their employees.
A Bigger Slice of the Pie
Looking at all the numbers can be a bit confusing – and even depressing to some degree. Yet that doesn’t change the fact that health insurance is taking an ever-bigger slice of the household income pie. As the health insurance slice gets bigger and bigger, less of the pie remains to pay other bills.
Our current system is unsustainable. It will remain so as long as premiums exceed inflation. Consumers cannot keep dedicating a larger portion of their income to health insurance premiums and still expect to cover the rest of their household bills. The math just doesn’t work.
