You may be familiar with this simple, yet powerful healthcare cost equation:
Total Healthcare Costs = Healthcare Price Per Unit multiplied by the Number of Healthcare Units.
Using this equation, if healthcare costs are increasing, it is because:
- The price of healthcare is rising
- Utilization (or the number of healthcare units) is increasing
- Or both
The Health Care Cost Institute (HCCI), a non-profit organization whose mission is to provide complete, accurate and unbiased information about healthcare utilization and costs, recently reported that healthcare costs are rising primarily because of No. 1 – the price of healthcare is rising. Utilization, according to the report, is flat or decreasing in most categories.
HCCI’s “2015 Health Care Cost and Utilization Report” analyzed employer-sponsored insurance (ESI) (i.e., anonymous medical claims from United Healthcare, Aetna, Humana and Kaiser Permanente) from 2012 through 2015 and reported that overall ESI healthcare costs rose by 4.6 percent in 2015. What makes this report unique is that many reports about healthcare costs look at a combination of private insurance, Medicare, Medicaid and billed charges costs. All of these costs are VERY different from each other and are only relevant when examined on their own. The HCCI report looks at ESI claims, which are most relevant to employee benefits professionals.
Even MORE interesting is Figure 8 on page 15 of the report, which shows that utilization for inpatient healthcare services decreased by almost 4 percent in 2015 and remained essentially flat for Outpatient, Professional (doctor services) and Prescriptions. In other words, the number of hospital visits, MRIs, surgeries, colonoscopies and prescriptions written in America has decreased or remained steady.
So why did healthcare costs rise by 4.6 percent? Because the price of healthcare services increased.
- The price of Inpatient Services rose by 6.6 percent.
- The price of Outpatient Services rose by 3.5 percent.
- The price of Professional Services rose by 3.5 percent.
- The price of Prescriptions rose by 9 percent.
Interestingly, we also saw this trend in 2013. I wrote in my 2013 blog “Breaking News: JAMA Reports on Top 4 Drivers of Healthcare Cost Inflation in U.S.” that “the number of units has not gone up (i.e., demand for healthcare services), but rather THE PRICE PER UNIT has gone up and driven the rise in healthcare costs.”
The more things change in healthcare, the more it seems they stay the same: Three years later, price increases continue to be the driver of healthcare cost inflation.
What does this mean for employee benefits professionals?
- Your wellness strategies to make employees healthier and, therefore, use fewer healthcare services may have a hard time controlling healthcare costs because they are being offset by rising healthcare prices.
- Having a strategy to directly address rising healthcare costs needs to continue to be a focus: consumerism, transparency, second opinions, narrow-networks, Accountable Care Organizations.
I’m in favor of taking steps to improve employee health—we have programs at Compass to positively impact the long-term health of our own employees. However, these programs should be combined with programs that directly attack the rising prices in healthcare head-on.
To learn more:
- Read Compass blog: Healthcare Costs are Rising, But Where Is the Money Going?
- Read Compass blog: JAMA Reports on Top 4 Drivers of Healthcare Cost Inflation in the U.S.
- Read Compass blog: Hidden Cause of Rising Healthcare Costs: Referrals Up 100%
To learn how Compass helps 2,200+ employers implement this ‘1-2 punch’ strategy, visit www.compassphs.com