The Root of High Costs Segment 3 – Healthcare

In the first segment of the Root of High Costs, I discussed the high cost of living on Long Island, and especially the high property taxes, which no doubt contributes to the sky-high costs for housing, including owning a home or paying rent. School taxes account for the highest percentage of property taxes and must be lowered.

While the high property taxes are especially unique to Long Island, segment 2 discussed an issue of national significance, namely the high cost of college. In segment 2, I discussed the astounding rate at which colleges have hired new administrators and its possible impact on the increases in tuition. College costs have risen 1,200 percent since 1980, which is incredible.

For anyone trying to have a future on Long Island, trying to buy a home or maintain a home, and particularly if you find yourself either saving for college, going to college, or paying off student loans, you already know the headwinds you are facing with this 1-2 punch of high costs.

In this 3rd and final segment of the Root of High Costs, I’ll discuss another issue of national significance, and one that could have the potential for catastrophic repercussions, the cost of healthcare.

One thing that makes healthcare costs so precarious is its unpredictability. When dealing with property taxes, you should know what the taxes are, and the annual increases are limited to two percent per year per State law. Anything above that requires voter approval. With college costs, you probably know while you are applying to colleges, what kind of costs you are dealing with, whether you’ll get financial aid, and what kind of debt you’ll be managing upon graduation.

However, with healthcare, the costs are more complicated and difficult to navigate. One has to figure out whether they have access to health insurance, what the premiums are, what is covered, and what the co-payments, the non-covered services and deductibles amount to.

According to https://pubmed.ncbi.nlm.nih.go, the United States has the most expensive health care system in the world, with per capita health expenditures far above those of any other nation. Many would question if Americans are getting their money’s worth.

For many years, like college, health care costs have been rising above the overall rate of inflation. There is little doubt that health care costs are a significant drain on most individuals and families, whether they bear the costs of healthcare premiums, non-covered services, deductibles or all the above. Also in the news, are the stories of a catastrophic illness causing severe financial hardship, even bankruptcy, for some people.

Several explanations have been offered for high and rising health care costs. These include new technology, administrative costs, the absence of cost-containment measures, the apparent lack of a competitive market place and possibly the costs associated with defending malpractice litigation. I will discuss medical malpractice in a follow up segment.

The United States accounts for more than 40 percent of all global health spending. “Health care almost always outpaces inflation, and health-care costs grow faster than the economy,” says Cynthia Cox, vice president at the Kaiser Family Foundation. “That’s why it’s representing a larger and larger share of the economy,” adds Ms. Cox.

According to a 2021 employer health benefits survey, annual premiums for employer-sponsored family health coverage reached $22,221 this year, up four percent from last year, with workers on average paying $5,969 toward the cost of their coverage. The average annual premium for single coverage is $7,739. The average premium for family coverage has increased 22 percent over the last five years and 47 percent over the last ten years. These costs never seem to stabilize, which forces consumers to react more than plan.

The U.S. spends about eight percent of its health care dollar on administrative costs, compared to one to three percent for many other countries, according to a study by JAMA (Journal of the American Medical Association). Administrative costs in healthcare usually include hiring and credentialing healthcare professionals, billing costs, maintaining medical records, IT costs, processing claims and more.

Then there is the cost of prescription drugs. Americans pay almost four times as much for pharmaceutical drugs compared to other developed countries. In many countries, prices for drugs and healthcare are at least partially controlled by the government. In the U.S., It’s more of a free market system, but without the competition that would typically keep costs under control.

According to www.debt.org, healthcare costs in the US are skyrocketing toward four trillion a year. Nearly one-third of GoFundMe campaigns are dedicated to raising money to help pay medical debt. As many as 62 percent of bankruptcies include significant medical debt, according to a study by the Maine Law Review.

For those fortunate enough to have employer-based coverage, the costs begin with payroll deductions. Most covered workers contribute 17 percent of the premium for single coverage and 28 percent of the premium for family coverage. Covered workers in small firms contribute a higher percentage of premiums for family coverage as opposed to their counterparts in larger firms (Kaiser Family Foundation).

Most covered workers must pay a share of the cost when they use health care services. 85 percent of covered workers have an annual deductible for single coverage that must be met before most services are paid for by the plan. The 2021 average deductible of $1,434 is 92 percent higher than the average annual deductible of $747 in 2011, according to the Kaiser Family Foundation.

Some states have taken steps to protect patients from unexpected medical bills following an illness or hospital stay. Under the New York’s recently passed Emergency Medical Services and Surprise Bill Act, patients in New York are protected from surprise medical bills when receiving emergency treatment from an out-of-network provider at participating hospitals or ambulatory surgical centers within their health plan’s network. Patients are also protected from surprise billing when a participating physician refers a patient to a non-participating provider (out-of-network) and the patient did not consent to treatment by the out-of-network provider.

While the New York bill should shield patients from unexpected medical costs, it does little to address the root cause of sky-high healthcare costs. It is yet unclear if providers will continue to forward their bills, and patients will be forced to challenge them under the new law.

According to Fidelity Investments, a healthy couple retiring at age 65 this year can expect to spend $285,000 on health care in retirement. That’s pretty extraordinary when you consider most retirees have coverage through Medicare, as well as a supplemental and prescription plan.

Now being considered in Albany is a measure would allow volunteer fire departments funded by taxes to also charge individuals for ambulance services and emergency medical care. Although in the past a patient in need of emergency services didn't have to worry about calling 911 and then getting a bill, it appears this could change. It is expected that this additional “surprise bill” will be partly paid through health insurance, however It’s just a matter of time before those costs are reflected in higher health insurance premiums. This further perpetuates the cycle of escalating costs. Now residents that contribute through their taxes could still be responsible for payment for emergency transport and care.

In a new national survey by West Health and Gallup, Americans have borrowed an estimated 88 billion dollars to pay for health care (https://www.westhealth.org/). In addition, Americans coughed up $126 billion from savings to cover unexpected health care costs. What’s also disturbing, one in four Americans had a health problem and didn’t seek care because they couldn’t afford it. Meanwhile 48 million Americans were unable to pay for a prescribed medication. These are dire statistics in a nation as prosperous as the US.

Gary West, founder and chairman of West Health, offered “three common sense, easy-to-understand reforms that could be implemented within the next two years.” They are:

1. End our conventional fee-for-service payment system, which rewards providers for their quantity of services (not quality or efficiency) and move to a patient-focused, cost-effective, value-based care system
2. Require Medicare to directly negotiate drug prices with pharmaceutical companies
3. Implement easy-to-understand health care pricing transparency

I would agree that the 2nd and 3rd
proposals mentioned above could be helpful in lowering costs, or at least get things moving in the right direction. Healthcare pricing transparency could create a more competitive market place for healthcare which would likely benefit patients. And having Medicare negotiate prescription prices has long been regarded as having merit and should lower costs as well.

However, the 1st proposal is far more complicated because we’re talking about a complete restructuring of how healthcare bills are generated, something that has always been accepted as provider based. At this writing, there is little discussion on implementing such a “value-oriented” system.

It would be wonderful if patients, who are the ultimate consumers in our system, could somehow be incentivized to save costs, through healthy living initiatives, and those costs then circled back toward lower premiums for health insurance. Such initiatives could include stopping smoking and joining a fitness program. It would be similar to how good drivers save money on auto insurance premiums.

Any policy changes at the State or Federal level would be better than accepting a status quo that results in the kind of statistics mentioned above. Patient need to know that their medical care will cost, that it will be covered, and that they won’t be forced into debt or bankruptcy because they became sick.