Wednesday, July 15, 2009

The Debts of the Spenders: Health Care Inflation - The High Cost of Living In America

While the deflation/inflation debate continues to rage among academics and traders, one area of consumer spending has continued to rise uninterrupted year after year for well over a generation. Health care costs - the biggest block to consumer consumption (in other areas) - is steadily growing into a giant monster that forces Americans to devote more of their savings for the inevitable high cost of living.

This problem is becoming particularly acute as the Boomer wave reaches maturity and starts withdrawing savings/liquidating assets to pay for costly medicines and medical treatments. No amount of Generation Y spending on Xbox's, iPods, and other youthful gadgets is going to be enough to offset their elders' withdrawal of spending dollars. Not when hospital beds routinely cost 5 digits and up.

But never fear, there is a solution available as Steven Colbert points out. The trick is in allocating health care funds as one of the 3 sacred cows of Congressional spending - Guns, Credit, and Corn. This is a pointed reference to the War lobby, Bank lobby, and Agricultural lobby.

Average premium increases on the rise

The average premium increase for health insurance has been decreasing in recent years, but 2009 saw a bump of over 10 percent for all plan types. According to the 2009 Compensation Data Insurance, conducted by Compdata Surveys, premiums increased 7.7 percent in 2008 and 10.7 percent in 2007; this year average premiums increased almost to 2007 levels, at 10.3 percent.

PPO plans and POS plans saw the greatest increase at 11.1 percent and 11.2 percent, respectively. HMO plans had a slightly lower increase, at 7.3 percent. HDHP plan premiums increased 10.6 percent.

Employers are more or less in agreement on the best way to cut costs. Over 88 percent are coordinating benefits to rein in rising costs, while 76.9 percent use a network of health care professionals. Nearly 60 percent passed the cost on to their employees by increasing their portion of the premium.

Insurance companies contribute an average 11.2 percent of payroll to the cost of health benefits, the same cost to provide dental, life, retirement, disability and other non-mandated benefits together.

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