Haunting Healthcare ExpensesWho's to Blame?

Lately, insurance companies have been taking the brunt of the negative press regarding escalating health care costs.  While some of the blame certainly relates to the way that insurance companies negotiate rates and corresponding discounts with hospitals and doctors, there are many other factors contributing to the problem.  Following is a list of only some of the most significant issues contributing to the cost conundrum. 1  

• Aging Population – The number of people in America over the age of 60 is projected to grow to as many as 110 million, or 27.4 percent of the total population by 2050.  Older people consume greater percentages of health care than younger people.  According to the Congressional Budget Office (CBO), by 2025 public healthcare spending (Medicare, Medicaid, CHIP, and marketplace subsidies) will near $1.9 trillion, approximately half of the entire government spending projection of $3.89 trillion.
• Pharmaceutical Costs – In 2014, prescription drug spending increased 13.1 percent over the previous year and accounted for 12.2% of total healthcare spending.  Factors leading to increased costs are higher utilization, newer, higher priced drugs, fewer manufacturers and manufacturer price increases for existing drugs.
• New Technologies – Biotechnology products and drugs have been created and are considered the new promise to prolonging and improving the quality of life.  Although expensive to produce and develop, there have been several success stories in this space regarding treatment for diseases such as diabetes, cancer and hepatitis C.  Medical technology implementation accounts for between 38% and 65% of current healthcare spending increases. 2
• Behavioral and Lifestyle Choices – Behavior is the most significant determinant of health status.  As much as 70% of healthcare costs can be attributable to behaviors such as smoking, alcohol abuse, and obesity.  Although we are becoming more cognizant of our waistlines lately, approximately 80 million Americans (34.9%) are obese. As of 2014, over 42 million Americans smoked creating an additional cost to employers approximately $5,128 a year in health care costs and lost productivity for those employed. 3

There are other issues contributing to higher costs.  Tort reform in some states like Texas has actually contributed to a decline in the cost of health care. Without reasonable parameters controlling one’s ability to sue, providers will continue to conduct redundant tests and treatment for common issues simply to protect themselves from a lawsuit.  For example, if someone is diagnosed with a problem requiring an image, the doctor would typically order an x-ray to initially diagnose the problem.  However, in many circumstances, the doctor will subsequently order a cat scan to thoroughly cover him/her from any uncertainty that might be brought up by a plaintiff’s attorney, despite the fact that the x-ray was conclusive.  The additional test could add hundreds and sometimes thousands of dollars to the bill.  All ordered to assist in exonerating the physician from the plaintiff attorney’s question; did he/she do everything he/she could to correctly diagnose and treat the illness?  Duplication of procedures and overuse of expensive and unnecessary procedures and prescription drugs contributes to the high cost of health care.  Medical malpractice insurance and defensive medicine adds $55 - $200 billion annually and accounts for roughly 7.2 – 12.7 percent of the increase in health care costs.  Capping the award for punitive damages and altering the liabilities laws could save as much as $11 billion annually. 4

More than $6 billion was spent between 2010 and 2015 to update provider’s systems to comply with ICD-10 coding.  To date, there has been very little to show for this expensive reboot to the medical records database.  While the intentions are good and the electronic records can be very beneficial, the investment is enormous and there are many inoperability issues hampering progress.  

Believe it or not, mistakes also contribute to the problem.  As many as 400,000 people die each year as a result of preventable medical errors.  It’s estimated that these errors cost the Americans approximately $1 trillion each year.  Tragically, it affects the cost of providing health care to everyone.  Many hospitals and providers are proactively working toward a team approach whereby physicians, nurses and other practitioners are encouraged to speak up and be on alert for human errors.  Despite that effort, it will take many years to change the bureaucratic system within many of our hospitals to reduce that cost to $0.

The PPACA (Patient Protection and Affordable Care Act) has been anything but affordable for society.  Many burdens on employers have discouraged small employers from participating in providing health care as a benefit.  For individuals and small employers, narrow rating bands, limits on composite rating and expanded levels of minimum coverage have resulted in higher costs.  Larger employers (>50 full-time equivalent employees) have become overwhelmed with the reporting requirements and affiliated government mandates.  The law has also affected state governments as expansion of Medicaid will soon start to create increased costs to states that are not budgeted to handle the increased burden.

So before you get too angry with your insurance company, keep in mind they are only responsible for assisting you in paying for your health care.  If you don’t question and challenge the issues surrounding the costs associated with providing the healthcare, the vicious circle of higher costs will continue to haunt!
 
1 Source: Healthcare Cost Drivers White Paper June 2015 - National Association of Health Underwriters 
2 Source: Robert Wood Johnson Foundation.
3 Source: National Center for Health Statistics.
4 As concluded by a Congressional Budget Office Study