The New Health-Care Cost Equation:Individual Accountability + Cost Cutting = Better Futures for All of Us

If personal incomes in the United States doubled every nine years, health care would not be a national concern. That’s the implied message of the 2011 Milliman Medical Index that measures the total cost of health care for a typical family of four covered by a preferred provider plan (PPO). The cost for a PPO plan in 2011 rose to a staggering $19,303, an increase of $1,319, or 7.3% over 2010.

According to the U.S. Census Bureau, the median U.S. household income was $50,211 in 2010. Even though the total cost of health care is not born solely by households, the proportion of household incomes spent on health care still remains significant. In fact, employees’ share of the total cost of health care has reached an all-time high and accounts for reaching almost 40% of total health care spending in 2010.

If health-care costs aren’t brought under control soon, the U.S. health care system can look forward to even more drastic changes as we wrestle with how to get costs under control. Our country’s economic future will require that we contain health-care costs before they crowd out an even larger portion of personal spending and the economy.

Implicit in the MIlliman study lies a fascinating story.

Of last year’s health-care cost increase, most of the increase–about 90%--resulted solely from increases in the unit cost of health care services. In contrast, only 10% was driven by increases in the use of health-care services. The price of hospital inpatient services rose 8.3%; outpatient services crept up as the price of physician services increased 4.4%.

Given this scenario, it’s fair to conclude that at least for the moment, private sector health-care spending isn’t propelled by a population of increasingly unhealthy individuals.

What’s more, price increases levied by the health-care system are driving commercial health insurance premiums higher.

In the zany U.S. health-care financing ecosystem, cost shifting from other payment sources is always an issue. And given the Milliman findings, we’ll surely see a significant amount of cost shifting at play. In today’s fiscal environment, Medicare and Medicaid are not increasing the prices they pay for health care. If this continues, providers of care can be expected to increase the prices they charge to commercial patients at a faster rate.

So is there any hope left for a reasonably well-performing, private health-care delivery and financing system? Maybe, but only if we collectively develop a mindset that focuses on health-care cost reduction--not containment or control--as our single most important priority.

For generations, we’ve thought of health-care expenditures as national “investments” in the health of our society. The problem is if past spending was an investment in the health of today’s population, it has produced dismal returns. As a society, we’ve never been in poorer health than we are today.

We need a mind shift in how we think about health care. Each of us must accept an individual accountability for improving our health and a collective commitment to lowering the cost of treating ourselves when we get sick.

If we don’t, we’ll face economic and social consequences no one wants.