Health Care Utilization: The Cost Equation Driving Prices Up

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Private health insurance companies and the Centers for Medicare and Medicaid Services (CMS) insure more than 90% of Americans (about 9% of Americans are uninsured). They set plan prices and premiums based on two main factors: total costs for covered services and utilization rates.

In the last two decades, Americans have seen their portion of health care premiums rise by 272% for individual coverage and 243% for family coverage (employers are paying over 200% more, too). Year-over-year increases are sometimes double-digit percentages, which can place undue burdens on families with tight budgets. Premiums for Medicare and Medicare Advantage plans for Americans over 65 also go up as costs and utilization rise. 

Unfortunately, this trend isn’t likely to reverse in the near future. The reason: Both parts of the premium equation — health care resource utilization and costs — are likely to remain high. 

What is health care resource utilization? 

A report from the National Academy of Sciences, Engineering, and Medicine Committee on Health Care Utilization and the Social Security Administration looked at the factors influencing use of health care services. Utilization, as defined in this report, is the use of “health care services to diagnose, cure, or ameliorate disease or injury; to improve or maintain function; or to obtain information about their health status and prognosis.” 

Health care utilization in the U.S. is steadily trending upward. The primary reasons for the increase include: 

  • Older populations that require more and more costly care.
  • More patients managing costly chronic health conditions.
  • Expensive new, innovative drugs and therapies.
  • Limited access to health care services for many Americans. 

How efforts to lower costs affect utilization in the short term

The Affordable Care Act aims to reduce the total cost of care in the U.S. and improve patient outcomes. CMS has introduced several cost-saving and quality improvement initiatives, broadly termed “value-based care” (VBC).

In the long run, VBC efforts will hopefully produce significant cost savings by: 

  • Minimizing or eliminating unnecessary care, which accounts for an estimated $760 to $935 billion each year, through better utilization management. 
  • Improving care quality by prioritizing the most effective treatments over ones that have little to no patient benefit. 
  • Incentivizing preventive care, which may help prevent some illnesses, slow the progression of chronic diseases, and effectively manage existing chronic conditions. 

In the short term, VBC emphasis on that third part — preventive care — is increasing the volume of health care services people need. More patients have health coverage than before the law was passed, which means more are going to their primary care doctors and/or seeking specialty care.

Widespread use of preventive care should eventually lower total costs by minimizing high-cost care in emergency rooms or hospitals, but in the short term it has the opposite effect on insurance beneficiary costs. When utilization rates go up, health insurance costs also go up. 

An aging population

As people age, they require more health care. People 65 and older make up about 17% of the U.S. population, but account for about 35% of all health care spending. If you include people ages 45 and up, 43% of the population is spending 70% of all health care dollars.

About 10,000 baby boomers are reaching Medicare age (65) every day in the U.S. right now. In less than 10 years, the entire generation will be over 65. Higher utilization is generally not a choice for this population, it's a necessity. With medical innovations that prolong the length and quality of life, that generation is likely to be utilizing more health care for several decades to come. 

Chronic disease management

Four in 10 Americans have one chronic condition, and more than half of them have two or more. When you include mental health, people with chronic health conditions account for about 90% of all health care spending. Part of the reason for that higher spending is higher inpatient and outpatient utilization compared to patients with no chronic conditions. We discuss the implications of chronic disease management on health care costs in more detail in Part 4 of this blog series.

New and innovative drugs and treatments

The U.S. health care system is often recognized as one of the most innovative and advanced in the world. The World Index of Healthcare Innovation ranks America fourth, behind only Switzerland, Germany, and the Netherlands. Patients in the U.S. have some of the earliest access to new therapies, surgical innovations, and new medications or drug therapies.

Innovation presents a challenge for health insurance providers, however, because leading-edge treatments cost more. Advanced procedures, tests, and imaging may require costly technology or care in large academic medical centers. Breakthrough treatments for devastating diseases like cancer require expensive and ongoing treatment with equipment that may only be available at limited sites throughout the country.

New medications for increasingly complex health conditions can improve quality of life, lengthen the course of diseases, or even cure a patient. But covering pharmaceutical research and development, production, operations, and marketing comes with a high price tag. 

Limited health care access

Another focus of many public health experts, providers, and insurance companies is the impact of health care access and social determinants of health on total care utilization and costs.

Patients with limited access to health care services may not get the preventive and ongoing care they need. When they do seek medical attention, it’s more likely to be through high-cost touch points like emergency rooms and hospitals. Lower-income individuals are about 2.5 times more likely to visit an emergency department for a preventable reason than someone with higher income. Patients who live in rural communities and have to drive long distances to get the care they need may also delay seeing a doctor until their health worsens and they require more expensive care.

Innovations such as telemedicine that can remove some of these barriers and lower health care costs are only available to people with reliable broadband service. Over 6% of the population (21 million people) lacks access to broadband services. The majority (14.5 million) live in rural communities. Such services will not have a significant impact on health care costs until they are widely available to all patients. 

Strategies for better utilization management in health care

There isn’t much we can do to change the demographics of an aging population. Nor are there short-term fixes for things like limited access to care and high rates of chronic disease. But there are steps we can take to address high utilization and help push overall costs down. 

For example, employers can help patients understand when to seek care in an emergency room and when urgent care is a better option. Care management programs and services provide another touch point for high-utilization, high-cost patients. These programs help people effectively manage their care to avoid emergency rooms, hospital admission, and disease progression as much as possible. 

Offering wellness programs to beneficiaries can also improve overall health, reduce the risk of chronic disease, or better manage existing conditions. While that alone won’t solve the health care crisis, many small changes can help move the needle in the right direction. 

What else is driving health care costs?

Utilization is just one piece of a large and complex puzzle of high costs in health care. In this series, we look at several other things contributing to high costs in more detail. We also look at ways Highmark Health and our partners are trying to address each of these aspects of care.


National Library of Medicine – Health-Care Utilization as a Proxy in Disability Determination –


RevCycle Intelligence – Higher Healthcare Utilization, Intensity Drive Healthcare Spending –


Annual Reviews of Public Health – Methods for Analyzing Health Care Utilization and Costs –


Health Care Cost Institute – 2019 Health Care Cost and Utilization Report – 


AHRQ – Management of High-Need, High-Cost Patients: A Realist and Systematic Review –


The Commonwealth Fund – U.S. Health Care from a Global Perspective, 2019: Higher Spending, Worse Outcomes? – 


Kaiser Family Foundation – Health Insurance Coverage of the Total Population –,%22sort%22:%22asc%22%7D


Foundation for Research on Equal Opportunity – United States: #4 in the 2020 World Index of Healthcare Innovation – 


National Council on Aging – Get the Facts on Economic Security for Seniors – 


HealthAffairs – Too Many Rural Americans Are Living In the Digital Dark. The Problem Demands A New Deal Solution – 


Rural Health Information Hub – Healthcare Access in Rural Communities – 


NEJM Catalyst Innovations in Care Delivery – Emergency Department Crowding: The Canary in the Health Care System – 


U.S. Census Bureau – Most Vulnerable More Likely to Depend on Emergency Rooms for Preventable Care – 


Peterson-KFF Health System Tracker – How do health expenditures vary across the population? –

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