Walter L. Markowitz, EdD, MPA, Assistant Professor of Health Professions, Hofstra University
Master of Health Adminstration Program
Health care costs in our country are too high. The United States spends more money for health care per capita and as a proportion of gross domestic product than all other industrialized countries. Yet millions in our nation are uninsured or underinsured. Many struggle to pay for recent, sharp increases in their health insurance premiums, co-insurance and deductibles, with the inevitability of continued increases, given congressional and presidential proposals. Increased health insurance costs present a significant financial burden for many families, who must make difficult choices concerning coverage options, which can force many to accept policies that provide inadequate or minimum benefits.
Polices with lower premiums require initial and ongoing higher out-of-pocket health care expenditures for enrollees. Those already struggling to pay higher premiums may feel forced to forgo care, other than for emergent or urgent reasons, rather than pay required, higher deductibles and co-insurance. Those at the lower end of the economic scale, as well as now many in the middle class, have been and will be most likely affected by these trends.
Despite our comparatively huge financial costs for health care, our nation already lags far behind the compendium of Organization for Economic Co-operation and Development (OECD) nations on many health status indicators. The United States compares unfavorably on providing access to care to its citizens; all OECD nations provide some form of universal health coverage, while the U.S. health care system does not. Increased health insurance costs, combined with proposed changes in the Affordable Care Act (ACA) threaten to further diminish the number of insured in the nation. A recent and unexpected decline in life expectancy, albeit slight (Rogers, 2016), adds to an unsettling picture of health already existing in our nation, with fears that this negative data may represent an impending trend.
Many consider that the goals for our health care system are embodied in the Triple Aim model: universal access, highest quality, and efficiency. If the components of the Triple Aim are to be embraced and achieved, the three should be viewed as interrelated. We must ask ourselves how best to achieve these goals. Which policy options provide the most rational path forward?
As a first step, we might consider Willy Horton’s rationale for robbing banks: “That’s where the money is.” We need to ask ourselves where the health care money is. What is driving unsustainably high levels of expenditures and expenditure increases, which consistently outstrip inflation? Can fewer health care dollars be more rationally distributed to provide better care for more people?
Currently, the go-to policy approach to high health care costs in the United States is to cut mandates like Medicare and Medicaid. Additional policy options include reducing pay to providers and benefits; limiting choice to providers; increasing co-insurance and deductibles; and limiting or denying access to affordable insurance. The president’s proposed budget for fiscal year 2018 (released May 23, 2017) follows this model. Cuts of $1.25 trillion over the next 10 years are proposed and will limit measures associated with the implementation of the Affordable Care Act. Proposed Medicaid reductions were $610 billion; $5.8 billion would be cut from the CHIP program for children. For 2018, the budget shaved more than $850 million from the Food and Drug Administration, $41.3 billion from CDC, and $5.8 billion from NIH, with nearly $400 million removed from the Substance Abuse and Mental Health Agency (Jost, 2017).
Consider the following: Adjusted for inflation, Medicare reimbursement to hospitals and physicians has been effectively reduced. Hospitals received a 0.95% increase for inpatient stays —
a significantly lower increase compared with inflation — in 2017 only if they reported quality data and attested to Electronic Health Record meaningful use requirements (Ellison, 2016). In 2015, federal legislation included Medicare physician payment increases of 0.5% for 2016, 2017, and 2018 (Cherf & Paul, 2017). In contrast, a Medscape survey (Grisham, 2017) indicates that physician compensation over time has risen approximately 5% annually, which can be attributed to competition among potential employers as opposed to rate increases from Medicare, Medicaid, or private insurers. If the Centers for Medicare & Medicaid Services (CMS) is already reducing the number of real dollars paid annually to physicians and hospitals, exploring other parts of the health system is required to provide additional, fruitful, and rational sources for savings.
One approach might be to consider a re-direction of some focus in our health care system to prevention and wellness, rather than the current disease treatment focus that dominates how health care dollars are expended. Despite evidence concerning the value and return on investment for public health prevention and wellness efforts, our health care system concentrates on “services delivered only when a patient’s illness becomes symptomatic” (Clarke, 2010, p. S-5). This focus on reactive medicine is consistent with a projected additional decline in public health’s share of total health expenditures from 2.65% in 2014 to 2.40% in 2023 (Himmelstein & Woolhandler, 2016). Clearly, public health and prevention measures have not contributed, and are not anticipated to contribute, to increasing health care costs. However, perhaps a focused re-direction to prevention and wellness can produce longer-term decreases in health care expenditures (Rula, Pope, & Hoffman, 2011; Schwartz et al., 2014).
Tellingly, the health insurance sector seems to be gaining wealth at a steady clip. In the second quarter of 2017, the top six health insurers realized $6 billion in adjusted profit, more than 29% higher than for the same quarter in 2016. The S&P’s health sector’s growth was only 8.5% for the same period (Coombs, 2017). In keeping with these rising profits, the estimated average rise for ACA silver plans next year will be 34% in the more than three dozen states that use the federal exchange. Rate hikes vary by state with Iowans seeing an increase of 69% for the ACA silver plan (Luhby, 2017). Interestingly, a survey of large employers revealed a projected increase of 5% in health plans, consistent with the past several years (Johnson, 2017).
The search for a more rational approach to achieving the Triple Aim should consider the imposition of limits on private insurance company premium increases and profits to more closely align with provider reimbursement levels. Another rational approach might be to implement a public option choice, which could compel the private insurance companies to compete on price with government-based insurers. Consider, for example, that administrative costs for Medicare are estimated to be between 1% and 6% and there is obviously no non-direct patient care allowance within Medicare premiums for a company profit (Sullivan, 2013). Medicare Part D premiums, unlike ACA silver plans, are expected to decrease in 2018, to approximately $33.50 per month on average, down $1.20 from $34.70 in 2017 (CMS, 2017).
The pharmaceutical industry is another sector of the U.S. health system in which prices, price increases, and profits appear to lack rationality. U.S. prescription sales in 2016 were $448.2 billion, 5.8% higher versus 2015, following increases of 14.5% and 11.7% in the prior two years (Schumock et al., 2017). “In 2013 the profit margin for pharmaceutical companies ranged from 10% to 42%, with an average of 18%” (Deangelis, 2016, p. 30). Unlike other industrialized countries, the United States permits drug companies to set their own prices to consumers as long as they do not collude on pricing with other companies. Medicare is not permitted to negotiate drug prices, leaving individual health insurers to negotiate individually, and the U.S. population is not permitted to obtain prescription drugs from other countries, which have substantially lower prices for the same drugs that exist in the United States. Drug companies assert that higher prices in the U.S. fund research and development costs; yet profits far outstrip these costs (Yu, Helms, & Bach, 2017).
Corporate profit is not the only source of high health care costs that requires some thoughtful attention. Defensive medicine, due to fear of malpractice litigation, should be thoroughly explored as a source of unnecessary resource utilization (Baicker, Wright, & Olsen, 2015). Protection against litigation by practicing evidence-based medicine provides real opportunities for efficiency by ensuring the relationship of resources to positive outcomes.
We need to ask ourselves how to achieve the Triple Aim of access, quality, and efficiency. What rational decisions can provide the best quality of care and improve population health, while increasing access and decreasing costs? The answers may not be universally popular; however, they may lead to a more rational approach to the development and implementation of health policy.
- Baicker, K., Wright, B., & Olson, N. (2015). Reevaluating reports of defensive medicine. Journal of Health Politics, Policy and Law, 40(6), 1157-1177. doi: 10.1215/03616878-3424462.
- Centers for Medicare and Medicaid Services. (August 2, 2017). CMS announces 2018 Medicare Part D premiums. Reported in Medical Benefits. Retrieved from https://eds-a-ebscohost-com.ezproxy.hofstra.edu/eds/pdfviewer/pdfviewer?vid=3&sid= 2f11d811-26ca-4a6e-b046-852a0ab984af%40sessionmgr4010
- Cherf, J., & Paul, A. (October 2017). Unsustainable physician reimbursement rates. American Association of Orthopedic Surgeons Now. Retrieved from https://www.aaos.org/AAOSNow/ 2017/Oct/Cover/cover01/?ssopc=1
- Clarke, J. (2010). Preventive medicine: A ready solution for a health care system in crisis. Population Health Management, 13(Supplement 2), S3-S11. doi: 10.1089/pop2010.1382
- Coombs, B. (August 5, 2017). As Obamacare twists in political winds, top insurers made $6 billion (not that there is anything wrong with that). Retrieved from https://www.cnbc.com/2017/08/05/top-health-insurers-profit-surge-29-percent-to-6-billion-dollars.html
- Deangelis, C. (2016). Big pharma profits and the public loses. The Milbank Quarterly, 94(1), 30-33.
- Ellison, A. (August 3, 2016). CMS final IPPS rule for 2017: 9 points to know. Retrieved from https://www.beckershospitalreview.com/finance/cms-final-ipps-rule-for-2017-9-points-to-know.html?tmpl=component&print=1&layout=default&page=
- Grisham, S. (April 5, 2017). Medscape physician compensation report 2017. Retrieved from https://www.medscape.com/slideshow/compensation-2017-overview-6008547#1
- Himmelstein, D., & Woolhandler, S. (2016). Public health’s falling share of U.S. health spending. American Journal of Public Health, 106(1), 56-57. doi: 10.2105/AJPH.2015.302908
- Johnson, C. (August 8, 2017). Large employers say health plans will cost more than $14,000 for an employee in 2018. The Washington Post. Retrieved from ezproxy.hofstra.edu/login?url= http://go.galegroup.com/ps/i.do?p= STND&sw=w&u=nysl_li_hofs&v=2.1&id=GALE%7CA500091892&it=r&asid=058582516f07c4677297cb0b510c7fd6.
- Jost, T. (May 23, 2017). Trump budget proposes big health cuts. Health
Affairs Blog. Retrieved from http://www.healthaffairs.org/do/10.1377/hblog20170523.060239/full/
- Luhby, T. (October 26, 2017). Here’s what you’ll pay for Obamacare in 2018. Retrieved from http://money.cnn.com/2017/10/26/news/economy/obamacare-premiums-open-enrollment/index.html
- Rogers, K. (December 8, 2016). Life expectancy in U.S. declines slightly, and researchers are puzzled. New York Times. Retrieved from https://www.nytimes.com/2016/12/08/health/life-expectancy-us-declines.html?_r=0
- Rula, E., Pope, J., & Hoffman, J. (2011). Potential Medicare savings through prevention and risk reduction. Population Health Management, 14 (Supplement 1), s35-s44.
- Schumock, G., Li, E., Wiest, M., Suda, K., Stubbings, J., Matusiak, L., Hunkler, R., & Vermeulen, L (2017). National trends in prescription
drug expenditures and projections for 2017. American Journal of Health-System Pharmacy. 74(15), 1158-1173. doi:10.2146/ajhp170164
- Schwartz, S., Mason, S., Wang, C., Pomana, L., Hyde-Nolan, M., & Carter, E (2014). Sustained economic value of a wellness and disease prevention program: An 8-year longitudinal evaluation. Population Health Management, 17(2), 90-99. doi: 10.1089/pop.2013.0042
- Sullivan, K. (2013). How to think clearly about Medicare administrative costs: Data sources and measurement. Journal of Health Politics, Policy and Law, 38(3), 479-504. doi: 10.1215/03616878-2079523
- Yu, N., Helms, Z., & Bach, P. (March 7, 2017). R&D costs for pharmaceutical companies do not explain elevated U.S. drug prices. Health Affairs. doi: 10.1377/hblog20170307.059036. Retrieved from http://www.healthaffairs.org/do/10.1377/hblog20170307.059036/full/