Saturday, October 07, 2006

Observations about the cost of health care

The rising cost of medical insurance is impacting, in a significant way, both employers who set up coverage for their employees and individuals who buy their own coverage. The reasons are various but one big contributor to the cost which is important to keep in mind when discussing health care reform is health insurance has become expensive because the cost of health care or medical treatment is very expensive.

To better understand this lets look at some points about overall health care costs. The current medical insurance system was designed for acute care and problems such as a broken leg. However, today perhaps as much as 75% of medical treatment costs come from chronic problems such as diabetes and obesity which the system was not desgned for.

Some of the factors influencing overall costs in the US include:

Our population is getting older. Not only are people getting older but within five years the number of them will increase rapidly. Because of this a large percent of total spending in the US comes from the federal Medicare program and from Long Term Care services which are a large percent of Medicaid’s cost.

The utilization of prescription medications has increased for many years, new medications are entering the market and replacing older less expensive versions, and pharmaceutical prices have been going up. Looking ahead the industry is on the verge of a big increase in biotechnology based medications. These certainly have the potential for vast improvements in peoples lives but the question for providers and others to consider, which applies to all new medical related technology, is how much of this spending on new ways will really result in a significant benefit to the person.

Up to 50%, of total health care spending results from the behavior and lifestyle choices of individuals. Educational efforts and incentives to encourage people to adopt healthier lifestyles will be very important steps because it is known costs are lower and people are more productive when they are healthy.

Now lets look at some cost drivers which result from the ways medical treatment is provided:

The cost for the same treatment can vary almost from town to town and there is evidence certain treatments are overused in some areas. Because of this the National Committee for Quality Assurance stated, The US health care system is still saddled with an anachronistic payment system that rewards quantity, not quality of care. This contributes to widespread variations in the way health care is delivered.

Variations in treatments mean many individuals are not receiving the most effective care. In other words health care dollars are not being spent in the best way. Thus, medical treatment providers should be working to not only eliminate overuse but to establish a system which gives them easy access to which treatments are effective. Educational efforts to encourage consumers to ask about the most effective treatment will also help.

The American Institute for Preventive Medicine reports 25% of physician visits and 55% of emergency room visits are not necessary. Why is this? The current low co-pay and the third part payment system which creates the perception someone else is paying are big factors in these extra costs.

The number of medical errors is high. While this is tragic it is also a big cost contributor since itÂ’s expensive to fix errors. Some large employers have stopped paying the cost of fixing errors. The implementation of additional information technology will help with this problem and reduce some of these costs.

Medical malpractice is a two fold problem. Providers have the added cost of very high malpractice insurance rates, especially in certain specialties. Then too, more costs are created since the risk of lawsuits motivates them to practice defensive medicine with extra tests and procedures. More focus on quality can lower these costs.

Increased utilization of medical treatment. 43% percent of the increase in cost in the last year came from patients asking for more services according to a large health care cost report. New technology coming into the market for diagnosis, surgery, etc will certainly add to the costs of this additional utilization.

While there is no one simple solution to these medical related treatment cost issues it is a known fact that private market efforts will be much more effective in working on solutions than government mandates or regulations.

There are also some things going on in the marketplace which will lower costs and in turn improve access:

Make the cost of medical treatment more transparent to consumers. The point is people have access to costs on all other goods and services they consume and there is no reason they should not have it for medical treatment.

New and lower cost ways to provide services are being developed such as walk in clinics with posted rates in retail stores.

Various company and other organizations are working to improve quality throughout all aspects of the medical treatment delivery system. The result - when quality is better costs savings can be achieved.

New approaches to medical insurance, through what are best called consumer choice plans with health expense debit cards are a good step toward helping people get them more involved in the medical treatment they receive. These new plans should not be considered - cost shifting. Since, as mentioned around 75% of medical treatment costs relate to chronic conditions the focus in consumer choice needs to be on changing behaviors.

Note: The cost of services paid through the third party payment system have increased substantially over the last decade but rates for a service such as cosmetic surgery, where people pay directly, have fallen. Another example is LASIK surgery. Rates were about $2,100 per eye shortly after it was approved in 1999 and have fallen 20% or more in six years. This certainly is evidence that when people are involved in paying for medical treatments with their own money the market reacts and costs are lower.

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