The rising cost of healthcare and health insurance premiums continues to be a major challenge for both employers and employees.
- It is estimated that in 2005, just over 16% of the gross domestic product was spent on healthcare in the United States, up from 13.8% in 1993.[1]
- As baby boomers begin to retire, healthcare spending is expected to reach 20% of GDP by 2015.[2]
- With healthcare premiums more than doubling in the past decade, controlling healthcare costs is at the forefront of pressures facing employers.[3]
- It is suggested that, if action is not taken soon to rein in healthcare costs, health insurance costs will overtake profits for some employers in 2008.[4]
The three primary factors contributing to increases in healthcare premiums are:
- General inflation;
- Healthcare price increases in excess of general inflation (due to higher-priced technologies, cost-shifting from Medicaid and the uninsured to private payers, and provider consolidation/broader-access plans); and
- Increases in utilization.[9]
Increases in utilization are estimated to account for 43% of the overall increase in healthcare premiums
[10]. The three most relevant to the changing employee benefits arena include an aging population, advances in medical treatments and deteriorating lifestyles.
Aging population
- According to the U.S. Census Bureau, the fastest growing age group is people over age 50.[11]
- This aging of America is creating a profound cost-management challenge for employers, as each additional year adds 2.5% - 3.0% in healthcare costs.[12]
- Medical costs are reported to rise an estimated 25% from age 40 to 50 and 35% from age 50 to 60.[13]
- The driver of excessive healthcare costs by age is a result of the relative health risk the person has, rather than the age itself.[14]
Advances in medical treatments
- With the eradication of serious infectious diseases such as mumps and measles, and great strides being made in fighting once-fatal afflictions like cancer, the overall life expectancy of Americans has increased.[15]
- Chronic diseases are the leading causes of disability and death in the nation, and account for three-quarters of the nation's total healthcare costs. More than two-thirds of all deaths are due to five leading chronic diseases heart disease, cancer, stroke, chronic obstructive pulmonary disease, and diabetes.[16]
- Medical advancements virtually ensure that cancer, heart attacks and strokes are more likely to disable an individual than to cause death before the age of 65.[17]
Deteriorating lifestyles
- The presence of risk factors associated with chronic disease, such as smoking, obesity, lack of exercise and diabetes, increases healthcare costs by 300% to 400%.[18]
- In 2005, among the total U.S. adult population surveyed, 60.5% were overweight; of those who were overweight, 23.9% were obese and 3.0% were extremely obese.[19]
- The costs associated with obesity are daunting with direct and indirect costs, such as loss of income from decreased productivity and absenteeism, exceeding $100 billion.[20]