The biggest threat to the U.S. healthcare system is its affordability. It is a menacing issue that impacts a large and growing majority in our society who think health costs are out of control.
According to CMS’ latest report, national health expenditures (NHE) grew 3.9% to $3.5 trillion in 2017, or $10,739 per person, and accounted for 17.9% of Gross Domestic Product (GDP). Under current laws, it is projected to increase 5.5% per year and reach $6.0 trillion by 2027—that’s. 0.8 percentage point faster than annual Gross Domestic Product (GDP) growth bringing healthcare’s share of the economy from 17.9% today to 19.4% in less than a decade.
As widely noted on the Democratic debate stage last week, the U.S. spends more on its healthcare system than any other country: among industrialized nations of the world, 28% higher than #2 Switzerland and 49% higher than the average of the others, up from 16% in 1970. That distinction is widening and, in tandem, its affordability for U.S. consumers.
Income Growth is Uneven: In 2018, average household income was $76, 335, up 4.3% from 2017. But it varied widely: Lowest Quintile Income of $11,335 (-2.2% 2018 vs. 2017), Second Quintile income of $30,544 (+3.8% 2018 vs. 2017), Middle Quintile income of $53,571 (+4.3% 2018 vs. 2017), Fourth Quintile income of $88,394 (+4.1% 2018 vs. 2017) and Highest Quintile income of $198,045 (+5.0% 2018 vs. 2017). The reality is that wages for almost half of the population are stagnant or falling.
Spending exceeds Income for Many: Average expenditures per household were up 4.0% to $60,815 last year. The biggest categories were necessities– housing ($20,001; +3.5% vs. prior year), transportation ($9735, +5.2% vs. prior year), food ($7869, +6.2% vs. prior year) and healthcare ($4924, +4.5% vs. prior year). All except housing increased faster than household income prompting many households to spend more than they earn. In 41% of households, monthly income fluctuates more than 30% and consumption exceeds income by more than 10% (JP Morgan Chase).
Healthcare Hits Low Income Households Hardest: In the most recent year, lower-income households experienced the biggest increases in their spending for healthcare: Lowest quintile +9.3%, Second Quintile +10.0%, Middle Quintile +8.9%, Fourth Quintile +8.6%, Highest Quintile +6.6%. Thus, rising health costs disproportionately impact lower income populations. Not surprisingly, almost half (46%) of those under 65 years of age say health costs worry them more than any other expense, 45% say they are unable to pay a $500 surprise medical bill and a fourth have outstanding bills due providers. (Kaiser Family Foundation). Polls show healthcare bills are least likely to be paid when stacked against housing, utilities, transportation and food, so as the issue of affordability translates to growing bad debt for providers and stress for consumers.
Little wonder health costs are a major issue in Campaign 2020. A remedy for surprise medical bills and jaw-dropping prices for special drugs are prominent in political rhetoric. Last week’s executive order by President Trump requiring public disclosure of prices for “shoppable services” by hospitals reflects growing populist sentiment that the healthcare industry is secretive, profitable, wasteful and complicit. That’s where we are. It also makes healthcare affordability particularly sensitive.
This is not news in the C suites and boardrooms across our industry. We see the public’s discontent up close. Acting on it is another matter.
We understand it is a major issue to voters, a growing concern to federal and state lawmakers and source of frustration to employers. We rationalize that cost-containment has been a focus for a decade. We explain that most of the over-utilization of unnecessary tests and procedures that drove our revenue growth in the past has been reduced. And we’re quick to point out our willingness to participate in new alternative payment models and shared risk arrangements that reward cost savings.
But the fact remains that our unit costs keep going up faster than our cost containment efforts drive them down: it’s because we can.
In addressing healthcare affordability, as an industry, we’re prone to circle the wagons and shoot in. It’s sector v. sector combat. Each asserts its own efforts to cut costs and increase price transparency. Each accuses others of wastefulness and ill-gotten gain. Each points to complicating factors—some legitimate and some not—to counter criticism. Each thinks media coverage is rarely helpful. That’s the state of play: each sector protecting its own interest.
The issue of affordability must be approached differently. It must be addressed by the industry as whole. It starts with two urgent imperatives:
Framing the Issue: Government data show spending for other things increasing faster than healthcare: in the past two years, consumer spending for entertainment (+14.9%), education (+9.7%) food at home (+6.2%), and transportation (+5.2%) actually exceeded spending increases for healthcare, but in households that live paycheck to paycheck, health costs is their biggest worry. In 41% of households, monthly income fluctuates by more than 30% and consumption exceeds income by more than 10% (JP Morgan Chase). Almost half (46%) of those under 65 years of age say health costs worry them more than any other expense and 45% say they are unable to pay a $500 surprise medical bill. (Kaiser Family Foundation). Healthcare affordability is an issue for almost half of the U.S. population, including those with insurance coverage. But many of these believe healthcare can absorb their unpaid obligations further exacerbating the problem.
Defining Affordability Realistically: Policymakers and industry leaders must advance a definition that frames affordability in a holistic context. To consumers, affordability is about total costs of care i.e. out of pocket costs, insurance premiums, co-pays, over-the counter therapies, functional foods and more. Policymakers must include social services programs aka ‘social determinants of health’ with health programs in budgeting: ours is the only system in the world that keeps them separate. And affordability must be calibrated beyond employer insurance premiums: over half the population does not have access to employer-sponsored plans wherein the affordability threshold is 9.86% of household income (employees whose insurance exceeds the threshold may access premium tax credit to purchase coverage on the marketplaces).
We need a definition that accounts for household circumstances and cost calculus that is realistic. We currently lack both.
Healthcare affordability is an issue that’s more complicated than it seems. Playing ‘name and shame’ with price gougers who take advantage of the system will not fix the problem: their boards are accountable to shareholders first and in most cases approved their actions. Nor is price transparency a panacea: having access to prices where choices are minimal or urgent care is needed renders it moot.
The answer is a full-throated public discussion about healthcare affordability that addresses it systematically and comprehensively. Each sector in healthcare is part of the problem. Addressing the two urgent imperatives is a start.
P.S. Add El Paso and Dayton to the list of communities where mass shootings happened. Per the Washington Post, as of August 4th, 2019, 251 mass shootings have occurred thus far in 2019 resulting in 1,032 people being shot and 280 deaths. This averages out to 1.2 shootings per day. This weekend, the families of 29 victims lost loved ones and 52 are in the care of hospitals. This week, they’ll get care from hospitals and caregivers in Dayton and El Paso. It seems to me background checks, assault weapon bans and expanded surveillance of social media to identify potential threats are a necessary start.
In Chicago last week, Fahad Tahir, President and CEO of Ascension St. Thomas Mid-town and West in Nashville told the Leavitt Partners gathering “It’s easier to be cynical than it is to be positive…” To address healthcare affordability and gun violence, it’s easier to be cynical. But solutions will only come when we stop placing blame and create a vision for something better. Let’s get something done.