Why Do Healthcare Costs Keep Going Up?

Rising medical costs It feels like these days everything just keeps getting more expensive and healthcare is no exception. We’ve all heard that we spend more money than any other nation on medical care.  And we know that for people who buy their own healthcare coverage, costs have increased even more rapidly in recent years. So what exactly is driving these costs?

The biggest driver behind the rates our members pay is the cost of medical care. We spend at least 80 percent of our members’ premium dollar on medical services (85 pecent for large group customers). That means paying for doctors, hospitals, pharmaceuticals, and other forms of medical care.

How we pay for our care

Most doctors are paid on what is known as a “fee for service” model. This means doctors are paid according to the number of patients they see and procedures they perform. A number of healthcare experts believe that this incentivizes some doctors to focus on quantity and high-cost services over quality of care.

Aging and chronic disease

Our population is aging. In 2010, 12.2 percent of Washington’s and 8.1 percent of Alaska’s population was over 65. The Department of Health and Human Services predicts that by 2030, people over 65 will make up over 18 percent of our population in Washington and 14.7 percent in Alaska. Although an aging population leads to higher medical costs, the more pressing concern is the number of us who are suffering from chronic diseases like diabetes and heart disease. The Centers for Disease Control estimates that treating cardiovascular diseases accounts for $1 in every $6 spent on healthcare in this country. Many of these conditions are preventable if people make better diet and lifestyle choices.

Increasing use of technology

Advances in medical technology have increased the quality and length of our lives. However, state-of-the-art technology comes at a price—not only do hospitals and clinics need to pay to purchase this technology (at a price that covers its research and development costs) they also need to pay to train the clinicians and maintain their equipment. Newer technology isn’t always the safest or most effective treatment, but people often think that newer or more expensive treatments are better, which pushes up costs, at times for little or no benefit to the patient.


Often we find that the more choices we want, the more we have to pay. Healthcare is no different. The fewer restrictions that are placed on care, the more expensive it becomes. Pharmaceutical costs are a great example: Generic drugs are just as safe and effective as their brand name counterparts, yet cost on average 75 percent less. It’s estimated that if generic drug use by Medicaid patients increased by just 5 percent, it could save $3.4 billion per year.

More on healthcare coverage basics:

Understanding How Healthcare Coverage Works

How Do We Set Your Rates?