Mismatch Between Premium Inflation and Health Care Inflation

Today’s Managing Health Care Costs Indicator is $15,073

Click image to enlarge.  Source 

Kaiser Family Foundation and the Health Research Education Trust (KFF/HRET) released their 2011 health insurance survey results – and the increase in premium inflation is disheartening.  KFF/HRET reports that overall health care premium costs have increased by 9%, to over $15 thousand for a family plan. This is despite reports of diminished health care demand – with fewer discretionary surgeries at hospitals.  It’s also despite a reduced fertility rate associated with the Great Recession. 

·        Health care premiums have more than doubled over the last 10 years.  Employers are paying 113% more for premiums than 10 years ago; employees are contributing 131% more.

·        31% of employees have at least a $1000 deductible for single coverage, and 12% have at least a $2000 deductible for single coverage.

·        60% of all firms offered health care coverage; this was only 48% for firms with 3-9 employees.

How could health care premiums be going up even if utilization is going down?

è Cost per unit could be increasing, even though utilization is going down.  There’s a lot of evidence of this – see my post of September 27

è Younger or healthier people are dropping their insurance. This would be consistent with layoffs of the most junior workers.  America’s Health Insurance Plans suggests that this is the problem.

è Family size has increased. This certainly happened with the Affordable Care Act (ACA) requirement that adult children could continue on their parents’ policies until age 26.   Higher family size could also represent more single people losing their insurance, or more families with two working spouses where one lost a job, and was added to the spouse policy.

è Health plan actuaries could have overestimated future costs, and thus charged  higher premiums than would be justified.  The ‘underwriting cycle” for health insurance premiums does not match actual health care costs perfectly – there is some lag. Further, health plans facing future constraints on their profitability could seek to increase their premiums now – especially when many will attribute price increases to health care reform.

è Coverage mandates can increase the cost of care.  The ACA increases costs through mandates including a prohibition of excluding preexisting illness, removal of lifetime maxima and requiring for full coverage of preventive care. Most actuaries estimate the cost of these mandates at 1% -  so this wouldn’t explain the high rate of overall premium inflation.

The increase in health care premiums during 2011 is ill-timed.  The economy is shaky – even more so with the threat of a Greek default in the Eurozone.  Unemployment remains high, consumer confidence low, and employers are reluctant to hire new employees.  Further, families are increasingly unable to pay their larger share of health care costs.  They are facing the double whammy of high premium increases, a larger share of premium costs, and higher member cost share when care is delivered.

Click image to enlarge.  Source 

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The IOM, Infographics, and Demogoguery

Today’s Managing Health Care Costs Indicator is $55

The Institute of Medicine has a new report out, “The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary.”  The book is available for free download.

The report is based on a series of meetings held in 2009, and it’s 852 pages long.  I’ve looked through  the table of contents and glanced at some of the articles.   This looks like this could be the textbook I’ve always wanted for my course “Managing Health Care Costs,” although it’s mighty hefty.

The IOM has produced some infographics to highlight the increase in health care costs, and this has been picked up by Ezra Klein and others.  Infographics can be demagogic, and an egg should not go up in price at the same rate as dramatically improved cancer therapy.  In fact, the current infographic posted at the IOM website doesn’t include this screenshot above - which suggests that if egg prices rose like health care, a dozen would be $55.

Health care isn’t the only thing that has increased its share of my family’s budget.  For instance, we paid under $40 a month for telephony and nothing for television or internet in 1990 – but we now pay over ten times that for 4 cell phone accounts, internet service, a residual land line, and more channels of cable than I care to think about. 

I like the infographics, though – they draw our attention to this important issue today.  

KFF published its findings on the (large) increase in the cost of health care.  More after I absorb this.

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The Continuing Saga of “It’s the Prices”

Today’s Managing Health Care Costs Indicator is 3.8%

I’m still making my way through the September Health Affairs, and Roehrig and Rousseau have used National Health Expenditure data to demonstrate what portion of the increase in the cost of health care is due to increasing prevalence of disease, and what portion is due to increased prices.

You can tell from the graphic and the title – prices trump again.   Over the 260 conditions the authors reviewed, the overall cost increase in the decade from 1996-2006 was 3.8%.  Roughly three quarters of this difference was due to increasing costs, and only a quarter was due to increased prevalence.  Shockingly, as our population becomes more obese and we worry about our sedentary kids, the increased prevalence of disease wasn’t even more disease – it was rather a higher penetration of treatment of existing disease.  For instance, while there was more hypertension, hyperlipidemia and diabetes – but this was offset by lower prevalence of cigarette-related lung disease and strokes.

Not all unit cost increases are bad.  New drugs that make various cancers and HIV into treatable chronic diseases represent important advances that we want and need. (Of course, over time these will also raise true clinical prevalence of disease. See, for instance, the increase in prevalence of Chronic Myelogenous Leukemia). However, our payment system rewards increased use of technology and increased use of new procedures, and we preferentially disseminate innovation that continues to ratchet up the cost of care.  

This article provides further evidence that we won’t be able to solve our health care cost crisis by focusing all of our attention on improving American lifestyles.  We’ll also have to address our high and rising unit costs.

Below are graphics for the decomposition of increase in costs for a few other conditions:

Note that the large decrease in prevalence of chronic obstructive pulmonary disease still couldn't overcome the increased cost per case - so overall per capital spending growth was still positive. 

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