Medicare May Be Serving Seniors, but It’s Putting the Rest of Us in a Financial Death Grip

Information released this past week point out the damaging impact that government health-care programs are having on the commercial, health-insurance market, and the market for private health benefits.

The first bit of news comes from the latest Healthcare Economic Indices released by Standard & Poor's (click here for the indices).  The indices show that the average cost of health-care services covered by private-insurance companies jumped by nearly 7.5% for the year ending June 2011.  By comparison, the average cost of services covered by Medicare increased only 2.5 percent for that same time period.  Experts speculate that hospitals will likely continue to shift costs to private payers as government programs squeeze hospitals and doctors with lower reimbursements to manage their program shortfalls.

For every action, there is an equal and opposite reaction.  On Monday of this week, the National Business Group on Health released the results of a survey of its membership.  The news here is that large employers expect their health care costs to increase 7.2% in 2012.  Is it just coincidence that hospitals are increasing their charges to private insurers by 7.5% and that commercial health-care costs will be up by an expected 7.2% in 2012?

The secondary affect of these developments is that employers now plan to offer even more consumer-driven health plans in 2012.  Of those surveyed by the National Business Group on Health, 75% said they expected to offer a high-deductible health plan (HDHP) with a health savings account (HSA) in 2012, compared to 64% this year.  Realistically, we should expect all, large employers to offer HDHP/HSA products within the next two to three years.

Some time ago, the virtues and vices of high-deductible health plans used to spark fierce debates. Not now.  For the time being, those debates have been overshadowed by the reality of health-care costs that continue to rise, and to increase disproportionately for commercial insurance programs.  High-deductible health plans are now the default choice for employers seeking to shield themselves from the costs of commercial health insurance.

Far from being better purchasers of health care, the government simply establishes a price it is willing to pay, leaving hospitals and physicians to right size their income statements and balance sheets by digging into the pockets of their customers.  As long as employers continue to finance the lion’s share of the private sector health-care tab, they will adjust their benefit programs to achieve a premium price point that’s affordable.  This will drive the continued adoption of high-deductible health plans and health savings accounts.

In the short run, advocates of greater health-care consumerism are benefiting from the continuing cost shifting from government programs that’s taking place.  This phenomenon may be single-handedly creating millions of HDHP/HSA health-care consumers, who are learning firsthand how to become savvy health-care purchasers.  This may, however, simply be the proverbial “lipstick on the pig.”

Unless America’s government programs are reformed quickly, they will continue to crowd out private benefit programs and make them even less affordable.  The increased prices paid for services in the commercial market are, in reality, a hidden tax paid to support the solvency of the Medicare program.

Equitable, sustainable, payment system reform can’t come quickly enough.

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.