So what's that premium increase all about anyway?

The Federal Employee Health Benefits Program premium increase for 2013 has some employees and retirees up in arms, and others shrugging their shoulders.

The Office of Personnel Management said it was pleased that the average 2013 premium increase will be only 3.4 percent. Detractors say that’s still too much when pay is frozen.

And that 3.4 percent, of course, is to a certain extent illusory because of the sheer number of plan choices under the FEHB umbrella. Increases to some plan premiums were a mere blip, while much larger jumps in others will have subscribers looking for less expensive alternatives.

People always pay more attention to a price increase when it pertains to something they need—like gasoline, food, medicine—as opposed to something they merely want. And people need health insurance.

So what or who is behind this premium increase? Or the increase in healthcare premiums in general? The answer isn’t simple. There are a lot of factors.

One thing is indisputable: Over the years, America has been dedicating a bigger and bigger piece of the pie toward healthcare. In fact, the share of U.S. gross domestic product spent on healthcare has been on an upward track for decades. According to a May 2012 “healthcare primer” from the Kaiser Family Foundation, the share of GDP dedicated to health care has increased from 7.2 percent of GDP in 1970 to 17.9 percent in 2009 and 2010.

In 2010, that came to $8,402 per person. Unfortunately, since 1970 per capita health care costs have increased an average of 2.4 percentage points faster than the growth of GDP, according to the report.

It’s a similar story with premiums. According to the Kaiser study, premium increases have run between 3 percent and 13 percent per year since 2000. That outpaces inflation, as well as increases in workers’ earnings, which generally have shown increases in the 2 percent to 4 percent range over that period. So premiums take up a bigger share of earnings.

So why are we spending more on healthcare? One is big reason, the study says, is that there is more of it available in the form of new technologies and treatments.

Think about it. If you are older than, say, 20 years old, you probably remember when only a handful of people had cell phones. The devices have proliferated a bit since then. 

Well, it’s the same with a lot of health care procedures. Things like minimally invasive arthroscopic and laparoscopic surgical procedures, MRIs and CT scans, endoscopies and colonoscopies. Surgery centers have sprouted all over the place to streamline the administration of outpatient procedures, helping to make all of these procedures and treatments more common in the process. 

Then there are the drug therapies. Are you middle age or older? Do you know anybody who is not taking a prescription drug? A statin drug for high cholesterol and/or a medication for hypertension? And maybe capsule in the a.m. to hold off acid reflux disease? Something for anxiety?

The list goes on. And all this stuff costs money. Moreover, new health care technologies, procedures and treatments continue to emerge just about daily. 

So—when there is more health care, people just use more health care. And the wonders of modern medicine ain’t necessarily cheap.

There are other drivers, too. Another one is that when people pay for insurance, they want to use that insurance. When you’re insured and ill, you don’t hesitate to use medical services. 

Say you’re healthy? At minimum, you’ll still probably make sure you take advantage of that extensive annual check-up—the one with the expensive battery of lab tests, and maybe some just-in-case costly follow-up testing that finds nothing, but better safe than sorry, right? Take a look at the bills generated for that annual encounter, and your insurer’s explanation of benefits, do some addition, and see what that check-up would have cost if the charges had not been covered by insurance.

There are other reasons that contribute to America’s overall spending on healthcare. Take your pick:

• There are more older Americans, and they use more healthcare per capita;
• More Americans are obese, requiring treatment for things like heart disease and diabetes;
• There are inefficiencies in the system, as when health care providers order or encourage unnecessary procedures and tests that waste medical resources;
• And plenty more.

To a greater or lesser extent, all these factors play into how much the average Joe and Jane end up paying for health care. And the list goes on.

But perhaps the real bottom line is this: Nobody gets today’s latest technologies unless somebody pays the price. And people generally want the best health care available

Be honest. Would you settle for the level of health care available to previous generations? Do you really long for the good old days when Grandpa never went to the doctor, believed the only medicines anyone needed were aspirin and whiskey, and still lived to be 95? 

Well, maybe he also got more exercise in a day than you get in a month.  

Posted by Phil Piemonte on September 28, 2012 at 4:12 PM