Explaining lower health care costs

2013

Do you think health care costs are under control?

That the rate of increase in health care costs has moderated over the last five years is a fact. What so-called experts cannot agree on is why. Conflicting studies point to the economy, a more efficient health care system and some people claim the Affordable Care Act is responsible. Experts also disagree on whether this change is temporary or long term.

On May 13, 2013 a Wall Street Journal editorial reviewed the situation and said this:

“In a word, patients make better decisions when they have the right incentives and information. Old-style first-dollar insurance coverage is declining in the private economy because employees prefer cash wages and employers can’t afford to finance ever-more expensive benefits. One way commercial insurers have responded is with plans that steer consumers to higher-value hospitals, doctors and other providers in return for lower out-of-pocket costs. Think of the way drug formularies encourage generic pharmaceuticals over name brands.”

The WSJ is a bit naive on this one in my view. I never met any employee in fifty years in the employee benefits business who preferred cash wages to good (tax-free) health benefits. In addition, the cost shifting to employees has been a trend for many more years than the beginning of the recession. I also would question the steering of consumers to “higher-value hospitals, doctors and other providers.” While insurers clearly try to develop cost efficient networks, they also must have networks broad enough to serve customers plus the ability to define high value (unless you only mean least expensive) providers is limited.

Most of all I strongly suggest the idea that patients are making better decisions thus helping to lower health care is fantasy. Other than deciding not to go to the doctor at all, patients have and want very little decision-making. On top of that a recent study found that when patients are more involved in decision making hospital costs actually increase.

Rather, what we are seeing is the effects of the economy, a recurring cycle in health care costs and some response to the threat of controlling costs just as we did with the initial push for HMOS in the late 70s and early 80s and during the Clinton efforts. Nothing in Obamacare has had time to affect the health care system, but has added significantly to costs for employers, insurers and elements of the health care industry.

That’s my opinion, what’s yours? Are annual health care costs increasing long-term in the 3% range or will we see 7-8% as the norm once again? I’d like your comment on this issue.

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