Health Care Spending Slowdown: The Consumer Paradox
By Al Dobson, Ph.D., Gregory Berger, M.P.P., Kevin Reuter, Phap-Hoa Luu, M.B.A. and Joan E. DaVanzo, Ph.D., M.S.W.
Dobson/DaVanzo, Report prepared for the Federation of American Hospitals, July 23, 2014
In recent reports we have outlined the continuing historic slowdown in the growth rate of health care spending driven in large part by emerging structural changes in the health care system. Recent evidence suggests that the cost curve has continued to bend, with health care spending declining in the first quarter of 2014. Despite this continuing trend in health care spending growth, consumers are increasingly concerned that they are ever-more financially burdened by spending on their own health care.
This consumer perception is largely a factor of the “new normal” being established through health insurance, which includes:
- Benefit plan designs, used by employers and insurers to shift greater financial risk to consumers through higher out-of- pocket spending (i.e., deductibles, co-payments, and co- insurance); and
- Health insurance premiums, which continue to rise faster than the average person’s income.
This trend of growth in out-of-pocket spending combined with increases in health insurance premiums that outpace increases in wages is not sustainable over the long term, and harms both patients and providers.
- In the first quarter of 2014, consumer spending on health care declined by 1.4%, representing the largest decline in over 30 years
- Almost 60% of Americans think that health care costs have been growing faster than usual in recent years, and more than 70% of consumers attribute responsibility for their perceived high and rising costs to health insurance companies
- Total premiums have increased substantially over the past decade, from 14.9% to 21.6% of median household income between 2003 and 20126
- Employee contributions to premiums and out-of-pocket spending have risen 23% faster than employee costs since 2009 (32% in cumulative growth vs. 26%)
- Cumulative growth in workers’ contributions to premiums between 2002 and 2013 was 114%, approximately four times higher than growth in workers’ average income (31%)
- Deductibles for family coverage increased more than 75% from 2006 and 2013 (from $1,034 to $1,854), while enrollment in plans with a deductible increased to 81% in 2013
- The percentage of workers enrolled in high-deductible plans ($1,000 or more) has increased more than five times over the past decade, from 4% in 2006 to 26% in 2014
- Overall, employees’ premium contributions and out-of-pocket expenses per capita have grown by 42% over the past five years, from $6,824 in 2009 to $9,695 in 2014
Payers and providers are both adjusting to a “new normal” in the marketplace through a variety of multi-year strategies aimed at improving quality, reducing costs, and minimizing financial risk within the evolving regulatory framework. Additional interventions or blunt policymaking, rather than allowing the market to respond to current reform efforts, could interfere with the system.
Both payers (including employers) and providers have prepared multi-year transition plans to adjust their business models, and require some level of predictability and capital reserves. Major disruptions to the operating environment for providers, payers and/or employers may generate uncertainty, which ultimately could flow down to consumers in the form of higher premium contributions and out-of-pocket spending.
By Don McCanne, MD
This report describes the paradox of the “new normal” in which increases in health care costs have been slowing as payer/employers and providers adjust their business models to the marketplace, while the financial burden for health care on patient/consumers continues to increase. As this report states, “this trend of growth in out-of-pocket spending combined with increases in health insurance premiums that outpace increases in wages is not sustainable.”
This study was sponsored by the Federation of American Hospitals – the lobby organization for America’s private, investor-owned hospitals. To no surprise, they recommend that the marketplace be allowed to work its magic, avoiding disruptions or policy changes that could interfere with the system. They caution that such interference “could flow down to consumers in the form of higher premium contributions and out-of-pocket spending.”
What? They have just shown us how the market they want to protect is taking care of payer/employers and providers (including for-profit hospitals) while creating financial burdens for patient/consumers through “higher premium contributions and out-of-pocket spending.”
They haven’t gotten reform right, and they won’t as long as we allow the medical/industrial complex to remain in charge. Reform needs to be centered around the patient, yet it is the patient who is being dumped on. Single payer would fix that.