Why Are Healthcare Costs Rising; Truth And Fallacy

Healthcare premiums have risen 87% over the past five years, well in excess of the cost-of-living and about four times faster than salaries and wages. Why …

Healthcare premiums have risen 87% over the past five years, well in excess of the cost-of-living and about four times faster than salaries and wages. Why are healthcare costs so out-of-control?

There are some obvious answers and many that are very debatable, such as regulation versus deregulation. There is also something of a vicious circle involved whereby pressures in one area of healthcare leads to problems in another area that increases the original pressure. Nursing salaries are a good example of this phenomenon.


Hospital costs represent the largest part of all medical costs and hospital costs are rising at the greatest rate of all medical costs. The largest component of hospital cost is the cost of salaries. Nursing salaries are a major component of that cost. As hospitals are pressured to reduce costs, they have begun to treat nursing staff as “variable cost”, that is, when the patient census is low, they send nurses home and call them back when the census is higher. As a result, there are fewer fulltime nursing positions available and great pressure on the nursing staff available to care for patients. This situation has caused nurses to leave nursing, creating a void that is filled by agency nurses whose hourly rate is much more expensive, driving up salary costs. Nurses often prefer to become agency nurses so that they can control their schedules better and receive more money directly in their pockets.


Medical students are choosing specialty practice over general practice in increasing numbers. Specialty healthcare tends to be more expensive than healthcare supplied by primary care physicians. In addition, when consumers are treated by a variety of specialty physicians without coordination by a primary care physician, conflicts in treatment and medication can lead to other medical problems.

Lack of primary care physicians

Many families have not established an ongoing relationship with a primary care physician. When they become ill, they go to the emergency department for care. Emergency care is the one of the most expensive ways to access medical care because the charges for emergency care must reflect the cost of 24 hour availability of highly trained physicians and nurses who are poised for life and death care. When that staff is used to treat a strep throat, that strep throat care becomes a very high cost treatment.

New Drugs

The cost of prescription drugs has been rising 6-9% annually for a number of years. Prescription drug cost increases are related to several factors:

1) the high cost of research and development; it takes about 20 years of research and testing to develop a new drug and that cost must be made up over the seven year life of a drug’s patent.

2) Marketing costs of persuading to use one manufacturer’s drugs over another’s drugs.

3) Investor demand for high profitability in the pharmaceutical sector has led to huge increases in price in order to meet high rate of investor return.

4) Biotechnology advances that are creating advances such as gene-specific drugs possible but at a high cost of development.

The Growing Uninsured

As healthcare costs increase and employers reduce their contribution to health insurance premiums, more Americans are uninsured or underinsured. People without insurance tend to put off seeking medical care until there’s a crisis. Treating people in crisis is much more expensive than providing preventive care. For example, it’s much easier and less expensive to monitor and control a hypertensive person’s blood pressure with a daily drug than it is to treat that person after a stroke.

Malpractice Litigation

Contrary to many people’s belief, malpractice litigation has an almost negligible effect on healthcare costs. However, malpractice premiums, often rising due to pressure on insurance companies to produce high value returns, do make medical care more expensive.

Many of the reasons for the rising cost of healthcare are systemic in nature and require a macro response. However, individual consumers can reduce their own healthcare costs by practicing prevention and selecting a primary care physician to oversee their healthcare needs.

For more information and clarification contact: Alan Masters 800-795-6823 Toll Free 530-318-6971 Cell [email protected] email