11/30/2008 05:12 am ET Updated Nov 17, 2011

Insurance Insanity

You don't need me to tell you you're paying more for health insurance. You already know how much. But did you know this? Not only is the dollar amount more, that premium is biting off a bigger mouthful of most people's earnings.

The consumer health organization, "Families USA", reports health care premiums in the U.S. rose 5 and ½ times faster than earnings over the last eight years. Premiums increased 78.3%, while median earnings went up 14.5%.

"Families" executive director Ron Pollack says, "this shows health insurance costs are rising unabated and each year more people are priced out of the health care they used to take for granted." According to the report, such fast-rising health care costs are plunging people into debt and worse. It also cites a study that found more than half of the current bankruptcies are due, at least partially, to problems with medical costs. And we thought sub-prime mortgages were the only factor.

However, AHIP, America's Health Insurance Plans, which represents nearly 1,300 member companies, spins it differently. It says growth in the cost of health insurance premiums is actually slowing down. A study prepared by PricewaterhouseCoopers for the AHIP found premiums increased 8.8% between 2004 and 2005, 36% lower than they found in 2002. The study says consumers were responsible for 43% of the increase--citing a greater demand for medical treatments and defensive medicine, as well as aging and unhealthy lifestyles.

Ever wonder how your premium dollar is divvied up? According to AHIP, 86 cents of every dollar goes directly to physicians, hospitals, and other medical services, including the cost of medical liability and defensive medicine. Just 3 cents on the dollar constitutes insurance company profit. Mind you that 3% adds up to record profits of 12.6 billion dollars a year, marking a 170% increase from 2003-2007. What's left of the insurance dollar goes to consumer services such as disease prevention and costs associated with government regulation, claims processing and other administration.

Where does this leave us? Good question! We're still paying more for plans with higher deductibles and co-pays. How to heal the ailing health care system has been a source of debate in the presidential campaign. Senator John McCain wants to
partially separate insurance from employment and allow marketplace competition to widen the number of people covered and lower costs. Senator Barack Obama wants to build on the existing employer and government based system and require employers to either offer health benefits or contribute to the cost of a new public program. Remember both of these are campaign proposals and neither has received resounding pre-election endorsements.

What about the health insurance industry itself? AHIP points to a plan it proposed almost 3 years ago. It would give patients, providers, and purchasers greater access to objective information about treatments and services. It would encourage widespread adoption of health information technology, such as electronic health records, to reduce medical errors. It would replace the current medical liability system (think lawsuits) with a dispute resolution process. It would align payments with the quality of patient care, deploy strategies emphasizing prevention and improving chronic care.

If such measures were enacted, AHIP maintains health care costs would drop $145-billion dollars by the year 2015. The non-profit, non-partisan National Coalition on Health Care says rapidly rising health insurance premiums are the main reason cited by companies for NOT offering insurance. The NCHC also says the percentage of people with employment-based health insurance has decreased from 70% in 1987 to 59% in 2006. This translates into a growing number of uninsured families and children. And where do they end up for treatment? One in five say their usual source of care is the emergency room---and we all know how expensive that is!