Utilization or price: Which is the bigger healthcare problem?
Health care spending has skyrocketed in the U.S. over the last three decades, and continues to take up a larger and larger share of the nation’s GDP,…
Of course, this is not news to brokers. Many employer clients have faced 10 percent, 15 percent, and 20 percent premium increases over the last few years, seemingly regardless of plan design changes or wellness initiatives. This trend has put pressure on employers and, in many cases, reduced benefits for employees. In turn, these parties pressure brokers to find a solution.
As with any problem, finding a solution first requires diagnosing the biggest cause of the problem.
Utilization versus price
Faced with perpetually rising health care costs, the industry has presented solution after solution to curb utilization — but premiums keep rising.
New data is confirming what some have been saying all along: that the problem wasn’t exclusively high levels of utilization. A new study published last month in the Journal of the American Medical Association found health care use in the U.S. did not differ from ten high-income peer countries, but we still overspent them by double in 2016.
There was one exception—MRIs, which Americans do obtain at a higher rate than other nations. But for nearly every other service considered, the U.S. is in line with other nations. However, administrative costs in the U.S. are more than double those in other countries, while pharmaceutical costs and physician and nursing salaries are also higher.
The study came to one key conclusion: The biggest culprit for high premiums today is high prices, not high levels of utilization. Per unit, U.S. health care labor, pharmaceuticals, devices and administration are inflated compared to other countries. “Efforts targeting utilization alone are unlikely to reduce the growth in health care spending in the U.S.,” the study said, and a concentrated effort to reduce prices and administrative costs is needed.
Where do we go from here?
This isn’t to say that programs that aim to help individuals and families be smarter utilizers of the health care system are without value. The rise of these and other utilization-focused efforts have been beneficial in making consumers more aware and responsible for their health care dollar and recognizing the costs of chronic care.
But at the same time, they aren’t the wholesale solution that many in the industry or in Congress have hoped for. In some cases, when utilization wanes for a provider, it makes up the difference with price increases, effectively offsetting any reduction in overall health care spend.
One group that is quickly recognizing this fact is employers. Faced with continued premium increases and realizing that smarter utilization cannot address the problem on its own, many smaller employers are going self-insured so that they can take measures to manage price increases more proactively with reference-based pricing. It will also certainly be interesting to see what action Amazon, JP Morgan Chase, and Berkshire Hathaway take with their recently announced health care initiative.
Many employers are catching on to what JAMA’s data supports—the prices are just too high.