Health insurance companies are dooming

It’s time to choose among the many plans offered through the various health exchanges as part of Obamacare, among the variety of Medicare Advantage and prescription drug plans offered by private insurers as part of Medicare (for those who are age-eligible), and, for the 62% of employees who are have the opportunity, time to sign up for an employer-sponsored health insurance plan.

As we struggle to make sense of the health insurance landscape, it’s a good time to consider why health care costs in the United States are so high and outcomes so relatively poor and, more importantly, what the future is likely to bring.

For now, the U.S. is unique among advanced industrial economies in its reliance on private insurers to administer much of the health care payment system. But this situation is almost certainly going to change. Cost containment and competitive pressures will transform, if not doom, health insurance companies. Here’s why.

We have a performance problem

Let’s put the U.S. health care system in some comparative context. U.S. healthcare is exceedingly expensive. According to OECD data released in 2014, among 34 advanced industrialized countries, the U.S. spends $7,662 per person (adjusted for purchasing power parity differences), which is more than 2.6 times the OECD average. The U.S. devotes 16.9% of its GDP to health care, 1.8 times as much as the average. In the case of health care spending measured any way you want, the U.S. is No. 1 by a large margin.

Despite all that spending, America’s health system does not perform particularly well. That same OECD report shows that the U.S. ranks 27th for life expectancy at birth. This comparatively low ranking is not merely a consequence of higher infant mortality, where the U.S. ranks a dismal 53rd in deaths per 1,000 live births. Even considering life expectancy for men aged 65 places the U.S. in 23rd place.

The U.S. ranks so poorly on health outcomes partly because it is the only advanced industrialized economy that has not provided health care to everyone, a situation that persists even after the passage of the Affordable Care Act. Not having health insurance adversely affects access to health care, which in turn affects mortality and morbidity. One Urban Institute analysis estimated there were about 22,000 excess deaths annually because of a lack of universal access to care, while a study published in the American Journal of Public Health calculated that there were approximately 45,000 excess deaths in 2005 because of the absence of universal health coverage. Numerous research studies have analyzed some of the pathways that lead to these excess deaths, including reduced use of preventive screenings among the uninsured, which means that disease is detected later when it is more difficult and expensive to treat.

U.S. health care costs are not only high, but they continue to rise and more of those costs are being shifted to individuals. For instance, even though overall health cost inflation has been curtailed by the recent recession, in 2015, the cost for covering my spouse and myself through Stanford-provided health insurance will go up by an astounding 25.5%. Although this is an unusually large increase, the Kaiser Family Foundation reports that in the last decade, employee premiums have increased more rapidly than total health insurance costs as employers—using a combination of increasing premiums, deductibles, and copayments—have relentlessly shifted health care costs to their workers.

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