As Demand Goes Up, So Does Cost

By Matthew D. Mohr

Our health care costs are increasing rapidly. It’s partially because of the aging population, which requires more care, and partially because of somewhat-uncontrolled escalation in the charges levied by providers.

At one time, the cost of health insurance seemed reasonable, but as time has passed, insurance costs have increased substantially. Businesses have tried a variety of actions to control costs in the face of the increases — deductibles and co-pays have gone up and some business owners chose to eliminate insurance for some workers.

I recently asked an older individual if he remembered the deductible on his first good health insurance plan (roughly 40 years ago), and he replied he distinctly remembered it was $50. A quick calculation of age and time indicates this reasonable deductible would grow to $10,000 within the next 10 years, if the rate of increases continues at the recent pace.

About 12 years ago, some colleagues and I compared our health insurance costs. Rates in our region were about 30 percent less than those on the East and West Coasts. Since that time, our rates have risen continuously and I suspect they are no longer cheaper.

The Affordable Care Act was supposed to provide some relief, but many believe it has not succeeded. The two basic promises of the Affordable Care Act are hard to debate. Had the law succeeded, the nation would have seen lower health cost increases and better care for the whole society. Unfortunately, when the law was passed, basic economics were not considered.

Who could argue providing low-cost health insurance services to all who are in need would be a bad thing? Accomplishing these ideals through demands and higher taxes was central to the debate. A large shift upward in demand without a corresponding upward shift in available supply will result in price increases. More people buying a product generally leads to higher, not lower, prices. Building facilities and educating providers takes a long time, so an overnight demand shift caused havoc and rapid price inflation.

Dealing with this rapid increase in health insurance cost has hurt business profits and the disposable income of many consumers. Gaining control of these costs will not be easy, especially since demand caused by the aging baby-boomer generation will continue to place stress on available care. PB

Matthew D. Mohr CEO, DACOTAH PAPER CO. FARGO, N.D. MMOHR@DACOTAHPAPER.COM