Understanding Health Insurance

Health Care FAQs

Why does health insurance cost so much?

Why does health care cost so much?

Why are we spending more on health care than we used to?

Why do insurance premiums go up but physician reimbursements don't?

What can health care providers and insurers do about the rising costs of health care?

What is HCSC doing to help reduce the cost of health care?

What is HCSC doing about the problem of access to health insurance?

Why does health insurance cost so much?

The cost of health insurance is directly related to the cost of paying for health care services, the costs associated with liability and defensive medicine, the cost of complying with government regulations and the cost of administering health benefits, wellness and disease management programs.1

As a customer-owned company rather than a stockholder-owned company, Health Care Service Corporation (HCSC), which operates the Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, puts its net earnings into its policyholders' reserve fund, to serve as a safety net of about $646 for each of its nearly 15 million members, or enough to pay for a single ambulance ride for each current member, in some areas.

1 PricewaterhouseCoopers

Why does health care cost so much?

There are three primary reasons health care costs so much:2

  • The impact of inflation
  • The amount of price increases above inflation related to the higher cost of health care labor and technologies
  • The increased amount of demand for and consumption of health care services

For example, from 1987 to 2006, the general rate of inflation caused health care spending to increase about 84 percent just to keep pace.3 However, overall personal health care spending above inflation during those 20 years increased 214 percent4, a reflection of the increased demand for and consumption of health care services.

Prescription drug spending increased about three times as much as overall health care spending during that time, while hospital care spending increased at a rate slower than overall spending. (This may have been offset by pharmaceutical interventions that helped keep people out of the hospital for conditions that previously would have required hospital care.) Physician care spending kept even pace with the increase of overall health care spending.

2 PricewaterhouseCoopers

3 Bureau of Labor Statistics

4 Centers for Medicare and Medicaid Services

Why are we spending more on health care than we used to?

There are three primary reasons we are spending more on health care than we used to:

  • The inefficient and ineffective use of medical services
  • Poorly coordinated and redundant care
  • Personal health habits that lead to poor health

Americans receive health care services in sync with the latest medical evidence about only half the time.5 In addition, despite spending more than $2 trillion annually on health care, the overall quality of care has increased only three percent over the past few years.6

At the same time, it is typical that 25 percent of health plan members with chronic and/or multiple conditions account for 75 percent of the health plan's spending for care. In addition, health care components operate as separate silos in the United States — without the benefit of shared information about patient conditions, medical history, services and medications being received from other health care providers.7

Most importantly, in terms of health care spending, personal habits that lead to poor health are increasing the demand for and consumption of health care services. Chronic diseases, many of which are preventable, account for more than 75 percent of total health spending in the United States. Obesity and its complications cost at least $93 billion per year.8 The economic costs of diabetes will likely soon exceed $174 billion per year.9 Cardiovascular disease costs about $300 billion per year.10

5 The New England Journal of Medicine, 2003

6 Agency for Healthcare Quality and Research

7 Institute of Medicine

8 Health Affairs, 2003

9 American Diabetes Association

10 Centers for Disease Control and Prevention

Why do insurance premiums go up but physician reimbursements don't?

There are many components that make up a health insurance premium. On average, for every dollar of a health insurance premium:11

The amount of each dollar that goes to doctor reimbursements as well as the amount that goes to health plan benefits administration and health insurer earnings have remained flat over the years.

The reason that health insurance premiums have gone up but doctor reimbursements haven't is because more of the health insurance premium dollar is being spent on specialty care and on medical technology services than when general practice medicine played a larger role in how we receive health care services.

In addition, too much of the premium dollar is spent on the practice of defensive medicine and malpractice liability costs, reducing the amount available for reimbursing appropriate care. For example, the direct costs of medical liability were estimated to total nearly $30 billion in 2005.12

11 PricewaterhouseCoopers

12 Towers-Perrin-Tillinghast

What can health care providers and insurers do about the rising costs of health care?

There are several activities that health care providers and insurers can pursue, although the intensity of pursuit will vary depending on the provider or insurer. There are three general areas and at least 10 specific opportunities to make improvements:

Inefficient and ineffective use of medical services

  • Development of an evidence-based outcomes repository or database
  • Increased incentives for health care provider use of evidence-based medicine and proven preventive measures
  • Increased information sharing among health care providers and consumers about best practices in terms of cost and quality outcomes

Poorly coordinated and redundant care

  • Development and use of a collaborative care system that links patients, health care providers and health care payers
  • Increased incentives for collaborative care decision making among patients, providers and payers
  • Integration of traditional and nontraditional systems of care along with private and public health delivery systems

Personal health habits that lead to poor health

  • Development of incentive-oriented, health plan member-focused programs targeting high-risk behaviors
  • Implementation of proven, community-based programs for children, incorporating education, exercise and healthy eating
  • Integration of health improvement components into existing public-private community programs
  • Development of public awareness and education campaigns targeting at-risk populations

What is HCSC doing to help reduce the cost of health care?

As the largest customer-owned health insurer in the country and fourth-largest health insurer overall, HCSC believes it must be a leader in getting health care costs under control, not only to support its customers' needs but also to improve upon the existing public-private system of health care financing and delivery. This system, with all of its innovation and advances in medicine, is an essential part of the standard of living in the United States.

HCSC's strategy is to go to the root of the problem and reduce cost by helping to improve health. HCSC believes the best way to do this is by combining comprehensive health insurance and programs to manage chronic disease with wellness initiatives that can help prevent the onset of disease and optimize individual health. Consistent with HCSC's mission to promote the health and wellness of its members and the community, the implementation of its strategy is twofold:

Member Focus

To support HCSC's strategy as it relates to its health plan members, HCSC has developed and is implementing a health information system that can link health plan members with their doctors and HCSC's clinical staff in both a high tech and high touch manner. The system provides a way to maximize health care quality and minimize health care cost in a customized way for any individual.

Known as Blue Care Connection, the system is designed to gather, combine and analyze an individual's physician, hospital, lab and pharmacy claims information; biometric data (such as weight, height, body mass index and waist circumference); personal health record information; and doctor and hospital medical record data.

From there, a customized profile can be developed and a personalized plan of action can be provided to optimize individual health and help keep individual health care costs to a minimum. This plan of action can range from preventive care and health counseling, to lifestyle and disease management, to chronic or acute care case management.

The system is designed to continually update and adjust an individual's profile and plan of action based on new information about the member's health status and improvements in best practices related to prevention and treatment.

Community Focus

To support its strategy of health improvement as it relates to the people who live in the communities where HCSC operates — regardless of whether they are HCSC health plan members or not — HCSC is developing and implementing comprehensive public health programs. On this front, HCSC is working with community partners who share a two-pronged goal of:

  • Supporting and providing help in response to current, critical health care needs
  • Conducting research and developing programs to improve community health and well-being in the long run, especially for at-risk populations

While recognizing the variety of needs that exist at a local level, HCSC has identified and is targeting a specific condition that has one of the greatest costs to the community: childhood obesity.

The first major HCSC initiative that engages the problem of childhood obesity is the HCSC-OrganWise Guys (OWG) community collaborative initiative, a nationally recognized elementary-school based education and nutrition program that combines health and wellness curricula and nutritionally sound cafeteria offerings. The HCSC-OWG initiative brings together a critical cross section of stakeholders who want to build healthier communities and improve the future health status of the country. The initiative's goal is to address wellness at an early enough age to make a difference in the future.

What is HCSC doing about the problem of access to health insurance?

HCSC believes that solutions to the problems of access to affordable insurance must build on the current public-private system, which provides coverage for nearly 85 percent of all Americans. No proposals should put that coverage in jeopardy. To that end, HCSC has designed a variety of on and off exchange health insurance products to increase the number of individuals and small businesses with health coverage.