In the last article, we took a high-level view of healthcare, identifying some useful definitions and an overall understanding of how health insurance coverage works. We looked at different types of health plans and the ways deductibles and out of pocket maximums function. Now that we have some shared language and understanding of healthcare, why is healthcare expensive and continuing to get more expensive? There is no single reason or all-inclusive answer. Here’s the biggest issue: we have almost no cost transparency.

Most of you reading this article can relate to a time—perhaps recently—when you went to the doctor for a service, asked what the service would cost, and were told that they wouldn’t know until they submitted your claim to your insurance. Essentially we have a healthcare system where we consume the product or service before we know what the bill will be. Almost every insurance plan offers different levels of coverage and payment structures, so we don’t have much transparency on the actual costs of products and services. This makes “cost controls” almost impossible to institute. Because the baseline for costs is so obscure, it is difficult for an insurance company to assess their potential exposure to paying claims, so they must estimate high, to make sure they can cover all incurred claims. Additionally, there is a requirement in the Affordable Care Act (ACA) that requires insurance companies to pay claims to an unlimited dollar amount, and they cannot discriminate on preexisting conditions. With fewer ways to limit and control liability, the cost of coverage goes up each year. Some other important drivers of cost increases can be related to rising administrative and drug costs.

In the next Colorado Green NOW, we’ll explore what you can do about the rising costs, and how employers can leverage the offering of benefits as a competitive advantage. [Read the previous story in this series.]

Kevin Wood is a Benefits Consultant with Quandary Insurance.