Why are U.S. Health Care Costs so Exorbitant?

In a recent poll from Gallup, 61% of U.S. adults said they are concerned that their health insurance plan will require them to pay higher premiums or a greater portion of medical expenses. The question of why U.S. health care costs are so exorbitant and what to do about those costs has been debated for decades.  Along the way, health care experts, lawmakers, doctors, nurses and administrators have searched for long-term solutions. In Colorado, hospitals are trying to do their part by retaining quality care while reducing costs. However, there are other issues facing consumers, such as escalating health insurance premiums and pharmaceutical prices.

Health Insurance

The cost of health insurance in Colorado rose 50% between 2008 and 2017 for individuals who had coverage through an employer. For families with employer-sponsored insurance, premiums rose more than 60%.  Nationally, health care premiums continue to increase at a faster rate than both wages and inflation.

Bar graph showing average annual premiums at private-sector companies that offer health insurance in Colorado

Source: Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017.

Additionally, deductibles for health insurance in Colorado are rising even faster than premiums — 65% between 2010 and 2017, according to the Colorado Health Institute.

The average deductible for a family with employer-sponsored insurance in the state is $3,700, and Colorado’s average out-of-pocket costs for health care are among the highest in the nation, according to a recent analysis the Colorado Health Institute did for the Colorado Hospital Association.

Why? As premiums increase, employers have seized on high-deductible plans as a way to shift  more of the financial risk onto their employees.

Graph showing health care deductibles are growing

Source: Affordability in Colorado from the Colorado Hospital Association and the Colorado Health Institute.

Drug Costs

At the same time, the cost of brand-name oral prescription drugs rose more than 9% a year nationally from 2008 and 2016, while the annual cost of injectable drugs rose more than 15%. The skyrocketing cost of many prescription drugs resulted primarily from price increases, not expensive new therapies or improvements in existing medications, according to a report published in Health Affairs.  About 570,000 Coloradans – roughly the population of Colorado Springs – did not fill a prescription last year because it cost too much,  according to the Colorado Health Institute.

Price increases on existing drugs not only benefit drug makers but also health insurers, who can make more money through rebates on higher-priced drugs,  according to experts such as Gerard Anderson, professor of health policy and management at Johns Hopkins University.

Rising drug prices, as well as shortages for many critical medications, are impacting patient care and putting strains on hospital budgets and operations . Outpatient drug spending per admission increased by 28.7% while inpatient drug spending per admission increased by 9.6% between FY2015 and FY2017. This 9.6% increase was on top of the 38% increase in inpatient drug spending between FY2013 and FY2015. Almost 80% of hospitals said that drug shortages resulted in increased spending on drugs to a moderate or large extent.

Bar graph depicting how pharmaceutical earnings compare

Source: AARP


Total health care spending in Colorado is more than $49 billion a year, according to the Colorado Health Institute. Hospitals, who treat the most severely injured and sickest patients,  get a little more than a third of that spending.

Dollar bill graphic showing spending by health service type in Colorado

Source:  Affordability in Colorado from Colorado Hospital Association and the Colorado Health Institute

Importantly, hospitals spend most of their money on quality, patient care

Births, knee joint replacements, hip joint replacements, pneumonia and septicemia (blood infections) are the top five reasons for hospital stays. Specialty care, such as oncology and orthopedics, and intensity of care services, such as NICU, burn units, and emergency trauma, require equipment, technology and highly trained staff around the clock to provide life -saving procedures – regardless of whether the patient can afford to pay. Roughly 350,000 Coloradans continue to be uninsured, which affects hospitals’ costs.

Nurses are critical to patient care, so hospitals also seek to pay nurses and other employees a living wage so they can live in the same community in which they work.

Additionally, hospitals investment in technology, equipment and facility improvements to find cures to life-threatening diseases and so they are prepared in the event of epidemics or disasters.

Graph showing how hospitals invest in emergency preparedness

Hospitals continue looking for innovative ways to control costs without sacrificing care.

  • Breakthrough technologies, innovative software, and integrated design-based solutions are driving fundamental changes in the delivery of health care. The shift includes wearables and monitoring devices, cognitive technologies and sensors.
  • Hospitals are providing in-home care with new remote monitoring technology programs and technologies to monitor patients who are not critically acute, and where home care would be more beneficial to a patient than a hospital stay. By using new technologies to provide quality care outside of a hospital, patients can safely be cared for in the comfort of their homes surrounded by their loved ones.
  • Telemedicine can be used for those who live in rural areas and are far away from a primary care provider or specialist, as well as members facing transportation difficulties.
  • The Anschutz campus, where University of Colorado and Children’s Hospitals are located, is home to 70 biotech companies with 750 employees and over $800 million in grants to create new medicines and medical products.
  • Several of the region’s hospitals are ramping up their remote patient monitoring programs. Longmont United Hospital offers its LifeWatch program to monitor patients with heart arrhythmia, and more than 1,200 cardiovascular patients are part of the remote monitoring program at Boulder Community Health’s Boulder Heart program. Further, electronic health records and telemedicine have greatly improved the way patient care is delivered and compensated.
  • One hospital system has reduced unnecessary tests, saving patients nearly $2 million annually. They have also stopped conducting elective deliveries before 39 weeks, which has trimmed 5,280 NICU patient days a year and saved $25 million a year in costs. Additionally, they have employed telemedicine in rural hospitals, and Denver neurologists have treated 2,200 stroke patients close to their homes, saving them expensive transport fees and stress on their families.
Pie graph depicting hospital revenue by payer

Source: Colorado Hospital Association