Runaway Healthcare Expenses

Universal Challenge – Reducing Healthcare Expenses

Managing the ever-rising costs of healthcare continues to pose a challenge for most organizations, both in the private and public sectors. This is especially true for most corporations, non-profits, labor unions, municipalities, school districts, and universities, which typically provide its employees with a premium benefits plan. The fact that employees now typically make significant contributions towards the cost of these plans only intensifies the need to find alternative solutions.

Traditionally, healthcare in the US has been provided on a fee-for-service basis, with the majority of people obtaining health insurance coverage via their employer, creating a deeply entwined dynamic between health and employment.

As employers and insurance companies attempt to reduce their own costs, the burden of healthcare spending falls more heavily on individual consumers. Today, the average cost of healthcare for a family of four in the US is $25,000 per annum, with employees paying an average of 43% of this amount in insurance premiums and out-of-pocket expenses.

The primary drivers of the increased spending include the aging baby-boom population that will increase enrollment in the Medicare health insurance program for the elderly and disabled, a climb in the prices of medical goods and services, and high medication costs, the report said. When it comes to drug prices, it has been reported that the US pays the highest prices for branded medications globally.

Other reasons include administrative costs associated with billing multiple different insurers and negotiating with providers, defensive medicine (the over-prescribing of diagnostic tests, imaging, and therapies to help alleviate or defend a future lawsuit), and patient desire for the newest treatments and technologies.

According to the report, United States health spending is projected to rise 5.3 percent in 2018, reflecting rising prices of medical goods and services and higher Medicaid costs. National health care spending is projected to outpace growth in the United States’ Gross Domestic Product (GDP) by 1.2 percentage points.

As a result, CMS projected that healthcare spending will on average rise 5.5 percent annually from 2018 to 2026 and will comprise 19.7 percent of the U.S. economy in 2026, up from 17.9 percent in 2016. By 2026, health spending is projected to reach $5.7 trillion. The agency attributed the increase in large part to the United States’ aging population and rising prices for health care services.

Growth in prices for health care goods and services is projected to rise to 2.2 percent in 2018 from 1.4 percent in 2017, reflecting, in part, faster projected prescription drug price growth. The acceleration in prescription drug price growth (4.4 percent in 2018 from 2.1 percent in 2017) reflects the expectation that brand-name drug prices will more strongly influence growth in that year because the dollar value of drugs losing patents in 2018 is smaller than in prior years.

CMS also projected that prescription drug spending growth will continue to accelerate, mostly because of an increase “in the number of prescriptions dispensed.” CMS predicted that prescription drug spending growth will increase to an average of 7 percent from 2018 to 2019, “driven by faster price growth as a result of fewer brand-name drugs losing patent protection”.
Prescription drugs are expected to see the fastest annual growth over the next decade, rising an average of 6.3 percent per year, due to higher drug prices and more use of specialty drugs such as those for genetic disorders and cancer.

The current healthcare model in the United States (US) is economically unsustainable. Population growth, demographic shifts, and chronic care costs all mean that something needs to change. Per capita spending on healthcare in the US almost tripled between 1996 and 2014 and there are no signs that overall spending will decrease in the near future.

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