Don’t Blame Consumption for Costs

by Academyhealth on May 21, 2012 · 28 comments

Last week, the Milliman Index released their annual report, detailing that health care spending for the average American family of four is now more than $20,000 a year. Today, the Health Care Cost Institute released their 2010 Health Care Cost and Utilization report:

The 2010 HCCI Health Care Cost and Utilization Report is the first report of its kind to track changes in expenditures and utilization of health care services by those younger than 65 covered by employer sponsored, private health insurance (ESI). This report assesses the levels and changes in prices and utilization (including changes in the mix of services) focusing on 2009 and 2010. Additional analysis incorporating 2007 and 2008 data is available on the HCCI web site, www.healthcostinstitute.org/report. This report is also the first of what will be an ongoing series of reports from HCCI. Future reports will provide updated numbers as they become available and focus on additional aspects of health care costs and utilization.

The numbers are just as sobering. The average under-65 American covered by employer based insurance spent $4,255 on health care in 2010 (from all sources, including premiums and out-of-pocket payments). Older Americans spent much more than younger Americans, as those between 55 and 64 years spent an average of $8,327. But even those under 18 years of age – kids, who are supposed to be cheap and healthy – spent an average of more than $2,000 each in 2010. That’s staggering.

What accounts for this? Well, it turns out that care in America is extremely expensive. The average inpatient admission to the hospital cost $14,662 in 2010. If you were admitted to the hospital for a surgery, the average cost was $27,100. The average newborn delivery – if things went well – cost $7,371. Instruments like cost sharing and high deductible health plans that are designed to empower consumers lose much of their appeal when confronted with numbers like these. If you have a baby, or need to go to the hospital just once in a year, you’ve likely already spent as much as allowed out-of-pocket, meaning that any cost-sharing incentives to reduce spending are gone.

Moreover, it appears that prices, not utilization are the cause of increases in spending:

Growth in Utilization chart

credit: 2012 Health Care Cost and Utilization report

 

Between 2007 and 2010, overall utilization trends were stable or went down. Inpatient admissions went down more than 3% from 2009 to 2010. You can’t blame increased spending on longer admissions as the length of stay didn’t go up that year. Outpatient visits, including those to emergency room visits and outpatient surgery centers, also declined by more than 3% from 2009-2010. Even outpatient radiology services went down 2.7% from 2009-2010. The use of prescription drugs went up slightly overall (0.9%), but this was mostly in generic prescriptions (up 2.5%), not brand name drugs (down 3.9%).

Prices are going up, while utilization is going down. This can’t even be accounted for by the intensity of care:

Prices grew at faster rates than the intensity of services.

The intensity of inpatient admissions increased only 0.7% from 2009 to 2010, whereas the intensity- adjusted price increased 4.6 percent.

Intensity and intensity-adjusted price were both major contributors to the 10.1% trend in prices paid per out- patient visit, such as emergency room and outpatient surgery visits. However, unit prices grew more than intensity (5.3% and 4.6%, respectively).

With the exception of office visits, surgery, and pathology/lab services, intensity of professional procedures declined between 2009 and 2010.

Many believe that we in America are using too much health care. They argue that because many lack “skin in the game,” they consume too much care. This report shows that actual utilization is stable to decreasing in many areas. It’s the prices per unit of care that are going up, pretty much across the board. That will continue, even if we find new ways to incentivize people to avoid care. That’s a dangerous trend. If it continues, it means that we will be getting less and less health care, but paying more and more each year.

–Aaron Carroll

Dr. Aaron E. Carroll is an associate professor and vice chair of health policy and outcomes research in the department of pediatrics at the Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll

 

As part of our ongoing effort to raise awareness of health services research and increase its application in policy and practice, AcademyHealth has partnered with Austin Frakt, Ph.D., and Aaron Carroll, M.D., M.S., to contribute posts on the subjects of health care costs, delivery system transformation, and public and population health – areas AcademyHealth has identified as a priority in the current policy environment. As regular contributors, they’ll be discussing current events with an eye toward how new and existing research informs the issues. 

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{ 7 comments… read them below or add one }

Frank May 21, 2012 at 2:20 pm

Fee for service is the problem. There are too many incentives for doctors to order unnecessary services and tests.

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CRS May 21, 2012 at 4:25 pm

I think this was the point of the article that we are using less and spending more. I don’t like Fee for Service either, but I dislike it less after this well written post.

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G A GIbbons May 21, 2012 at 4:04 pm

What I experienced with cancer was a huge nightmare and the cost was not a concern – the very poor medical care was and is my concern. A surgeon who wanted to take off for the holidays to be with her family – never asking how long the tumor had been on my body – followed by a clerk preparing and administering technetium – a boom to the doctor but hell for me. I had permanent damage to my vision, hearings, and sense of balance – the clerk obviously gave me too much technetium since she did not know my weight. Then the oncologist refused to give me the chart notes and screamed I have a 55% chance of getting cancer again this was after she threw me into shock because she forgot to pretreat for the chemo. People usually go into shock on the second administration of chemo and this was my second – the doctor surely knew this yet proceeded and I consider it lucky that I am alive since the nurses were not paying attention. Had my friend not walked in when he did I would be dead. The fact that I walked around with a fast-growing tumor for seven months is totally unacceptable but I was in a state of shock and after the technetium – my brain was not working. Thus, I am but a small shadow of what I was before, and I attribute this to the very poor medical care I got. I advise everyone to refuse technetium – there are plenty of other tests that can be done. I advise everyone to refuse the BSGI – it was my downfall and although it allowed the surgeon to postpone surgery it did no favors for me. The doctors stripped almost all my chest muscles away so naturally I suspect something happened that they failed to tell me. The plastic surgeon stated I was pigeon chested – well I was not until the day of surgery. I guess it was his way of doing his own CYA- they left me without any padding on my chest bones, and in great pain. This I would say is the result of very poor medical schools who graduate people who should not be doing such horrible things to people. This is what American medical care did to me. With decent care, I would never have experienced such horrors.

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Bart May 21, 2012 at 5:35 pm

One of the two large hospitals in my university town was acquired by Sentara. After reading the justification for the deal I was unclear exactly why this was done. How does adding a a large profit-driven middle man save money?

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Chap May 22, 2012 at 10:44 am

The problem is not fee for service. The problem is that you are paying for others who don’t pay for anything. The problem is technology is advancing and someone has to pay. The problem is insurance companies take a lot of money off the top for doing nothing at all. The problem is malpractice laws.

It’s funny that people blame everything on fee for service. OK, well, enjoy your new healthcare when everyone gets paid the same no matter what they do. Enjoy your 12 month wait for an MRI/CT/specialist visit. Enjoy those fancy new innovations coming to a halt.

I think we should all switch over to a new model of not getting paid for how hard we work. How about everyone gets paid the same for whatever they do! That sounds pretty fair. So what if your secretary makes as much as you do, even though you work twice as many hours. You will work hard because you love your work. Money should never be used to motivate people, right?

Socialism has obviously had it’s problems in the past, but I’m sure that it will work perfectly if we try it just one more time.

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Peter Nelson May 24, 2012 at 6:43 pm

Of course prices are the problem. Unfortunately, the author never bothers to consider why. Instead, the author implies that this evidence debunks the idea that much of the problem with our health care system is that people don’t have enough skin in the game. But having skin in the game isn’t just about using or not using health care services. It’s also about shopping for health care services. Runaway prices have much to do with the fact that Provider A can get away with charging $2,200 for a CT scan when Provider B charges $800 for the same scan. Skin in the game brings the price of the CT scan down. It doesn’t just mean people avoid CT scans.

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