Healthcare spending increased by 4.2% in 2017 according to a study by the Health Care Cost Institute, increasing to $5,641 per person for individuals covered by employer sponsored plans. This is almost double the 2.13% general inflation rate as reported by the U.S. Bureau of Labor Statistics in 2017. The study attributes this increase to cost inflation and not increases in utilization. Pharmacy and hospital expenses are two of the fastest rising cost components with greater-than-average inflation.
Hospital consolidation has resulted in reduced competition – and while utilization has not changed, costs are increasing. Pharmacy utilization has actually declined; however, the cost increases have more than offset this drop and contributed disproportionally to the healthcare spending change.
Interestingly, a study released recently by the Workers Compensation Research Institute found that workers with a $550 or higher deductible remaining in their health plan were more likely to file a workers’ compensation claim for their medical costs. The increase in medical cost sharing has caused a pendulum swing which artificially increases workers compensation cost and lowers medical plan trend. These costs exist in a balloon-like environment – if one part of the balloon is squeezed, another part expands.
While the increases are significant, healthcare trends are far better than they were a decade ago. I believe the private sector is moving in the right direction. The focus on pharmacy cost is necessary – these costs had been out of control. Hospital costs are going to be next. The required disclosure of hospital costs has been very confusing at the onset; however, I am confident regulators will get this right. Cost disclosures will be clearer, allowing consumers to make better decisions for elective care. State laws limiting surprise billings for undisclosed out-of-network charges are emerging and the federal healthcare cost debate is also examining these practices closely. Referenced-based pricing is also checking egregious billing practices. Progress is slow but steady.