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Perspectives on the Effects of Rising Healthcare Costs

Posted by Matt Breese on Apr 26, 2016

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Headlines often place the blame for rising healthcare costs on the pharmaceutical industry. Headlines sell news. However, they can also over-simplify or incompletely represent the facts. If, in turn, the articles themselves fail to fully address the complex and inter-related truths about increasing healthcare costs, the public is left with the inaccurate impression that if it weren’t for pharma, healthcare would not be expensive.

The Affordable Care Act (ACA) and the cost of healthcare

The ACA held great promise for reducing the overall cost of healthcare. That promise has been largely unrealized as costs on multiple levels continue to rise. And, unfortunately, when costs increase in one segment of healthcare, the impact has a broad reach. For example:

  • Greater demand for coverage and a sicker enrolled population affect payers’ costs, which leads payers to raise premiums and/or co-pays, reduce reimbursements or withdraw from the market
  • Higher insurance premiums and co-pays increase patients’ out-of-pocket costs
  • Lower reimbursements and larger patient panels negatively impact providers’ practice costs, which could encourage them to limit assignment to certain health plans
  • Negotiated drug pricing can reduce prescription costs significantly for non-life-threatening conditions; but there is less flexibility in reducing prescription drug prices for conditions with few, if any, drug alternatives

A report from the Blue Cross Blue Shield Association suggests that new enrollees under the ACA have medical costs that are 22 percent higher than people who receive coverage from their employers. Additional analysis by McKinsey & Company found that insurers participating in the ACA in 2014 lost money in 41 state markets and were profitable in only 9. These statistics concern health insurance companies and have their leadership seriously questioning their ability to remain part of ACA marketplaces.

“Something has to give,” says Larry Levitt, an ACA expert with Kaiser Family Foundation, speaking to The Hill, a top U.S. political website. “Either insurers will drop out or insurers will raise premiums.” Either option will put an increased financial on patients and providers.

Financial stability pressured by Medicaid expansion

In 2014, states were encouraged to expand Medicaid, a program jointly funded by federal and state governments to provide care for individuals who meet low-income criteria. Because of that expansion, there are now more than 70 million people enrolled in Medicaid. In the first study to evaluate the impact of the expansion, which was conducted at the University of Michigan and the University of California-Los Angeles, researchers found that low-income adults in states that expanded Medicaid were more likely to see a doctor, stay overnight in a hospital or receive a first diagnoses of diabetes and high cholesterol than before the expansion. Other findings include:

  • Number of individuals who said they saw or talked to a doctor: 68 percent (up from a pre-expansion 58 percent)
  • Number of individuals who said they were diagnosed with diabetes: 13 percent (up from a pre-expansion 8.3 percent)
  • Number of individuals who said they have no usual source of care: 6.6 percent (down from 13.3 percent prior to expansion

States that expanded Medicaid question whether they can sustain these costs, while other states wrestle with how to address on-going access-to-care issues.

The cost of innovation

An aging population, abating economic growth and the price tag for medical innovation are contributing to concerns about the financial stability of healthcare throughout the world. The MEDPRO project of the FWF Austrian Science Fund, an international research organization, is studying the linkage between medical progress and population aging. A recent study found that per-capita health expenditures increase by about 13 percent in response to a particular innovation. The study attributes about 1 percent of that increase to rising costs of medical care, 2 percent to increased survival associated with the innovation, and 10 percent to increased demand for the innovation. Analysis also shows that individuals are saving more in anticipation of increased healthcare costs in their later years and/or new innovations that could positively affect their healthcare.

Few people question the need for research and development to advance healthcare — especially for deadly or life-altering conditions; however, most people fail to connect the cost of innovation to the increased cost of care. Pharma, along with medical device manufacturers, are leaders in innovation. Data from clinical studies that supports the benefit and value of new drug therapies is just as critical to the education of providers, payers and patients as is knowledge of alternative, less expensive drugs and their relative benefit and value.

While innovation drives medical advances and, in turn, improves outcomes for millions of patients, the value and benefit of the end-product of innovation must be weighed against the increased costs to patients, providers and payers. In the same way, increased access to care — especially for low-income individuals — is laudable, but it, too, comes with a price tag, which has typically been greater than anticipated. Nothing in life is free. Payers, providers, patients and our nation as a whole must work together to decide how much medical innovation and access to healthcare services is worth and then, together, they must determine how that price will be distributed.

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Topics: Specialty, Industry Trends