Opinion

Working together to curb rising health care costs

The health care field is facing a multitude of unprecedented changes as California prepares to implement the Affordable Care Act (ACA).  The impending changes make it increasingly important to consider the different factors affecting affordability and quality of care.

 

For some time now, health care costs have been on the rise. As we face new reforms which may add to costs, it’s time we look carefully at how we can work together to bring down existing cost drivers while readying ourselves for the coming reform.

 

Health care costs continue to rise faster than inflation as the baby boomers age and science develops new and costly technology. The rising rates of obesity and chronic disease also drive up costs. Health care for a Californian with chronic conditions costs an additional $5,550 per person annually. And 40 percent of California adults have a chronic condition.

 

Caring for an increasingly unhealthy population is expensive. The best way to mitigate this problem is to get healthy. By investing in our health we will also help to ensure affordability and increased quality of life.

 

In terms of overall health and coverage, the ACA will bring a variety of new benefits. New subsidies will help millions more Californians obtain health insurance.  Lifetime limits and pre-existing conditions will no longer be taken into consideration. And, as we’ve already seen, young adults can remain covered up to age 26 under their parents’ health insurance.

 

ACA will allow premiums to decline for many moderate- and low-income Californians who will qualify for subsidies through the state’s new marketplace for insurance, Covered California. But some will see an increase in their insurance premiums – and that may come as a surprise.

 

All the expansions in coverage come at a cost, new taxes, age rating restrictions and limits on geography based pricing will further stress premiums and potentially add to costs.

 

Already, California health plans are required by law to make taking care of medical costs a number one priority. Those costs consumed 89 cents out of every $1 in premiums for California’s commercial health plans in 2011, the last year for which comprehensive data is available.

 

With so much of the premium dollar going to health care costs, California’s commercial health plans had a net profit margin of 3.6 percent in 2011. By comparison, drug manufacturers reported a 16.7 percent net profit margin.

 

With slim net profit margins and limited administrative overhead, and the vast majority of premiums going directly to medical care, there’s often no room in premiums to absorb rising health care costs. Unfortunately, this means that consumers are ultimately sharing the increased cost of health care through higher premiums.

 

California’s health plans are committed to working with the Governor, Covered California, the Legislature and all other stakeholders to expand coverage to millions more Californians through the ACA. But as we move forward with these significant expansions in health care coverage, we must all work together to lower the underlying costs of care to ensure that coverage is affordable.

 

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