How medical expenses affect insurance premiums


Life-saving technology can also add to medical costs.

Consumers often wonder what factors affect insurance premiums. One big factor is the rising cost of medical treatment.

General liability, homeowner, workers’ compensation and auto insurance claims all are affected by post-accident medical expenses. From initial emergency response and trauma care to surgery, physical therapy and beyond, medical services are essential to helping people recover from an accident. But these life-saving measures are also major expenditures that impact insurance rates.

While the overall economy has trended toward deflation in recent years, medical costs have done just the opposite. Medical costs in the United States have risen at an average annual rate of 3.3 percent for the past five years as contrasted with an average annual overall inflation rate of 1.9 percent in the  economy, according to Table 29 in the Bureau of Labor Statistics’ CPI Detailed Report for July 2013. Find a summary chart at MetricMash.

Theories about the cause of medical cost inflation include:

  • Technical advances that bring about desired, but costly new treatments
  • Waste through duplication of services,  ineffective communication and fraud
  • Provider consolidations reducing market competition
  • An aging population and other factors that place additional demand upon the system
  • Legal costs
  • Shifting of cost from individuals who are unable to pay to a group, or from one group to another

While the debate about the causes of medical cost inflation will likely continue, it’s clear there is a correlation between increased healthcare costs and higher insurance premiums.

There are things individuals can do to gain some control:

  • Maintain a healthy lifestyle and responsible attitude toward safety
  • Avoid costs or treatments that are known to be unnecessary
  • Remain vigilant for billing errors, fraud and other types of waste
  • Participate in the national dialogue on how our society can keep costs in line, maintain the availability of insurance options and preserve each individual’s personal healthcare choices

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