Healthcare costs rising faster than salaries and company growth
Approximately 50% of Americans receive healthcare through their employers.1 According to a recent Crain’s CFO Forecast Survey, 80% of CFOs say that healthcare costs are outpacing growth. No wonder employees are being asked to pay for a bigger chunk of their care.
Employees now contribute more than ever to their healthcare costs. In fact, the increase in employee healthcare contributions has exceeded salary increases.2
And it’s not like the higher prices are buying us better care. Our life expectancy is shorter and we have a higher infant mortality rate. The World Health Organization (WHO) ranked the U.S. 37th among healthcare systems worldwide.3
Healthcare costs are a black box
There are several factors contributing to the high cost of U.S. healthcare. Two major factors are waste such as unnecessary tests, and the high cost of prescription drugs. Another important factor is lack of consumer awareness about healthcare costs.
Healthcare prices can vary widely depending on the provider, even in the same city. A couple of examples to illustrate the point:
- In New York City, the procedure for chest pains cost $5,971 at one hospital, and $23,762 at another – nearly four times the price.4 Even if the insurance company can negotiate a 50% discount, the more expensive hospital is still twice the price.
- The usual and customary charge for gall bladder surgery is $2,000 in Queens, New York. Just 20 miles away on Long Island, the charge is $25,000.5 That’s a price difference of more than 12 times!
But these numbers are hidden from consumers – until they see the bill or the Explanation of Benefits.
And don’t think a more expensive provider means better results. Decades of research show that hospital prices vary drastically and have little to do with the quality of service.6
If consumers knew the cost of care, they could make more educated decisions. Comparison shopping is fairly easy for other goods and services. But healthcare is complicated and prices are not readily available.
Not too long ago, health insurance covered practically everything so there was no motivation to find out medical costs in advance. But today, with such high coinsurance and surprise bills (such as for an anesthesiologist who isn’t covered by the patient’s health plan), we need to make prices more transparent. Hospitals are now required to post their prices online. But the descriptions are usually too unclear for the average consumer to understand.
All employer health plans are not created equal
We need a new type of health plan to lower the cost of healthcare for employers and their employees. Employers should look for a health plan that is:
- based on expected total cost of care, not on percentage discounts. Discounts on inflated prices are not discounts!
- more intuitive for families to make economic decisions. Enable families to compare the total cost of providers one time at open enrollment. If they have to research the cost every time treatment is needed, it’s too late.
- designed to eliminate the fragmentation of healthcare that leads to waste. A health plan can yield better care at lower cost by:
- promoting stronger patient-doctor relationships
- reinforcing a culture of teamwork
- enabling shared responsibility and patient information
2 Rising Health Insurance Costs Blunt Employees’ Paycheck Gains,” Bloomberg, September 19, 2017
5 How Economic Incentives Have Created Our Dysfunctional US Medical Market, Elisabeth Rosenthal, April 26, 2017