Everywhere someone is talking about Health Care Reform…
politicians, consumer groups, and the media. Big insurance carriers have become a target and are disparaged repeatedly for continuing to raise premiums. While everyone focuses on health insurance reform, no one looks at what causes these sky high increases: the rising cost of health care. According to the Centers for Medicare and Medicaid Services, by 2019 health care spending will near $4.4 trillion. The California Health Care Foundation reported that health care spending is rising three times faster than inflation. Additionally, Medicare spending is rising 10% annually while enrollment is only increasing by 2.5%. In 2009, the most recent data, Medicaid spending increased almost 7% while enrollment only increased 2.3%.
As a result, hospitals, outpatient surgery centers, imaging centers, labs, medical groups and pharmaceutical companies seek higher payments from health insurance carriers when negotiating contracts. Recently, some negotiations have reached impasses that only penalized patients who found themselves unable to visit their doctor or hospital due to a disruption in insurance. Carriers are caught between politicians who scorn premium increases and providers who ask for higher reimbursements.
There are many culprits driving this high and rising cost of health care.
First is cost shifting. As Medicaid and Medicare reimbursements decreased by 20% to 30%, hospitals and providers are attempting to shift lost revenue to insurance carriers. To do so, they have been seeking 25% to 45% increases in coverage. Yet with the clamor about high insurance costs, there is no way carriers can raise rates to offset these increases should they accept them, nor can they afford to absorb them. This illustrates a major predicament facing health insurance carriers– lower health care spending and increase premiums, or lower premiums and increase the health care cost burden.
Second is lifestyle choices that result in a higher use of health care services. It is widely known that 75% of health care costs are associated with lifestyle issues such as obesity, tobacco, and sedentary lifestyles. These choices lead to chronic issues such as diabetes, high cholesterol, high blood pressure and heart disease that could have been prevented purely by embracing healthier lifestyles.
A third cause is medical technology.
Expensive technology accounts for about one half to two-thirds of spending growth. Technology is now essentially mandated for compliance to HIPPA laws and is used increasingly by doctors seeking to protect themselves against medical malpractice lawsuits. Not all this technology contributes to better care. Technology expenses will only become worse as new tests and more costly equipment emerge.
The fourth cause comes from inefficiencies that result in the unnecessary repetition of services by multiple doctors. An anesthesia medical group in Los Angeles told me that about 50% of the time they are forced to re-order test results on a rush basis prior to surgery because critical reports have been omitted from the charts. In another example, I spoke with one individual who sees both his primary care doctor and his oncologist four times a year. Both doctors draw blood and send it for lab tests. Recently, he learned that the doctors were running the same tests. This duplication of draws and tests also doubled costs and insurance claims. Ultimately, carriers ended up paying double for the same services.
The fifth factor in rising costs is drug company advertising.
Doctors are prescribing more – and patients are taking more – drugs for conditions that didn’t exist a short time ago, conditions like restless leg syndrome. The Kaiser Family Foundation reports that nearly two-thirds of Americans fill at least one prescription and the average American fills 12 prescriptions annually. Half of all patients leave a doctor’s office with a prescription. Yet, these same people ask more questions when buying a car than when they get a prescription for a new drug. Additionally, patients with multiple doctors often receive a variety of prescriptions for different purposes. Unfortunately, patients don’t always show their drug lists to each of their doctors. This often results in new maladies from complications cause by mixing drugs, again, increasing medical care costs.
The last factor is health care fraud. According to the National Health Care Anti-Fraud Association, it is estimated that fraud adds up to 3% of all annual health care spending, that’s $68 billion a year, or more than $180 million daily. Better fraud prevention can only lower health care spending.
Even with health insurance reform, rising premium costs will prevail until the focus is placed on healthcare reform and these issues are addressed. Every participant in health care – from patients to doctors to carriers and politicians – must be part of the solution in order to bend the cost curve downward.
About the Author
Barry Cohn, president and CEO of RGEB, the largest group insurance agency and employee benefits firm in the San Fernando Valley. Founded in 1997, RGEB works with 400 companies representing 8,000 employees and over 2,000 individuals, families and seniors. Prior to RGEB, Mr. Cohn was regional vice president of Imperial Bank’s San Fernando Valley Regional Office, responsible for middle market banking in Southern California. He taught at UCLA Extension in the areas of accounts receivable management, financial statement analysis and entrepreneurial management. Mr. Cohn serves on the board of directors of the Woodland Hills Tarzana Chamber of Commerce. He is also on the regional board of the Leukemia & Lymphoma Society and Co-Chairs the 2013 Light the Night walk. Mr. Cohn earned his bachelor’s degree in economics from UCLA and a master’s in business administration from Pepperdine University.