Category: Health Care Costs

What are the Causes of Projected Growth in Spending for Social Security and Major Health Care Programs?

We’ve already noted that the media and many other got overly excited about a trivial delay in the date of the impending bankruptcy of the Medicare “trust fund”, as estimated by the Congressional Budget Office (CBO).

The CBO has followed up with a more sober article on its blog:

Under current law, spending for Social Security would increase from almost 5 percent of gross domestic product (GDP) in 2014 to more than 6 percent in 2039 and beyond (see the figure below). Even more of the anticipated growth is expected to come from the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies offered through health insurance exchanges): CBO projects that, under current law, total outlays for those programs, net of Medicare premiums and certain other offsetting receipts, would grow much faster than the overall economy, increasing from just below 5 percent of GDP now to 8 percent in 2039.

How to Pay for the Next Sovaldi

prescription-bottleImagine a pill that could cure cancer with one course of therapy or reverse an inherited, deadly disease. If it cost $1 million, could you access it?

This was the question asked at a recent panel discussion held by the American Enterprise Institute. The panel discussed a couple of new proposals to finance new medicines that come at a high price. Because these medicines address the needs of only a small number of patients, manufacturers contend that prices need to be high to make the investment worthwhile.

Cost to Treat Cancer Drops 34 Percent When Physicians Package Price

An experiment by UnitedHealth Group tested bundled payments for cancer care. Another name for bundled payments that you might recognize is package pricing — where a vendor offers to group all costs together and lower the total price in an attempt to win a consumer’s patronage. Although common in every other industry where consumers buy services, package prices are quite rare in health care (except cosmetic surgery). Ordinarily, oncology doctors are given a fixed percentage markup on the cancer drugs they administer in their offices. For instance, a doctor administering an expensive drug would earn a proportionately larger fee than a doctor using a cheaper generic. UnitedHealth Group wondered if this perverse incentive translated into doctors using higher-priced medications rather than a cheaper drug that might be more effective.

The study found that over a 3-year period doctors who received bundled payments spent about one-third less treating cancer patients than if they had been paid a percentage of every oncology drug they used. Authors noted that while actual drug spending rose, total treatment costs were lower than expected. In other words, doctors weren’t skimping on drugs; they were choosing the most effective drug regardless of their commission.

This result should not be unexpected. What would be considered common sense or conventional wisdom in any other industry is considered novel in health care. The bottom line: incentives matter!

Family Health Insurance Premiums Rose $18,610 since Obama Became President


America Next, a think tank headed by Louisiana Governor Jindal has toted up the cost of President Obama’s broken — and in hindsight absurd — promise to reduce the average family’s health-insurance premium by $2,500 by the end of his first term. In fact, premiums have risen by $18,610. The total cost to the economy is $1.2 trillion. The worst consequence:

Given annual full-time private sector compensation rates, the amount spent on higher health insurance premiums equals the cost of 3.9 million jobs each year, and nearly 6 million jobs in 2013 alone.

Yet Another Reason Why Obamacare Health Insurance Prices Make so Little Sense

Proponents of government run health care have an inexplicable disdain for geographic variability. They often seem to assume that physicians, treatments, and outcomes should be constant across the entire United States. Any variations in price, treatment modality, or expenditure ranks as a sure sign of an improperly run health care system.

The problem is that normal human activities vary even over relatively compact geographic areas, and the variations often reflect the exigencies of daily life rather than administrative boundaries. For example, when a company took the trouble to analyze credit and loyalty card data about its customer’s shopping habits, it found that even a relatively compact area like a city had distinct variations in its shopping and retail use patterns.

The maps below are reproduced from a Boston Consulting Group article about what the company learned about its pricing power. In the beginning, the company had the single pricing zone for all of Georgia shown in the left hand map panel. The right hand map panel shows how its pricing zones changed after customer habits were considered. Of interest is the fact that Atlanta ended up with multiple pricing zones. High population density makes it harder to move around, limits customer mobility, and people’s ability to access goods and services. The report notes that in Atlanta, stores serving the same clusters of customers often are “located along commuting corridors.”


States Spent $7.7 Billion on Prisoners’ Heath Care in 2011

GOV065A new report from the Pew Charitable Trusts reports that 41 states experienced growth in their correctional health care spending from fiscal 2007-2011, with a median increase of 13%. Further:

…state spending on prisoner health care increased from fiscal 2007 to 2011, but began trending downward from its peak in 2009. Nationwide, prison health care spending totaled $7.7 billion in fiscal 2011, down from a peak of $8.2 billion in fiscal 2009. In a majority of states, correctional health care spending and per-inmate health care spending peaked before fiscal 2011. But a steadily aging prison population is a primary challenge that threatens to drive costs back up. The share of older inmates rose in all but two of the 42 states that submitted prisoner age data. States where older inmates represented a relatively large share of the total prisoner population tended to incur higher per-inmate health care spending.

Healthcare Prices Jumped 50 Percent Year on Year from 12-Month Moving Average

The Altarum Institute is the go-to source for understanding healthcare prices and employment. According to its latest report:

Health care prices in May 2014 were 1.8% higher than in May 2013, well above the 12-month moving average of 1.3%. Hospital prices grew 2.1% while prescription drug prices rose 3.6%.  Physician and clinical services prices, which exhibited near-zero growth in the first quarter of 2014, grew by 0.6%. Health care gained 21,000 jobs in June 2014. Over the first half of 2014, the health sector grew by over 20,000 jobs per month, about 20 percent higher than in the first half of 2013.

Prices of prescription drugs jumped higher than prices of other healthcare goods and services. Further, healthcare prices continue to grow significantly faster than the Consumer Price Index (CPI). Exhibit 7 illustrates how ineffective Obamacare is at restraining costs: Per capita healthcare utilization increased at about 5.5 percent (year on year) in the first half of 2002, well before the December 2007 onset of recession, and dropped until the end of 2010. The growth of consumer-driven health care, including Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) remains the most plausible explanation for this effect.


Health Costs in Canada Increased 2.85 Times Faster Than Inflation in the Last Decade

New research from The Fraser Institute shows that health costs in Canada increased 53.3 percent since 2014. During the same period, consumer price inflation increased 18.7 percent and cash incomes rose only 34.7 percent. And the taxes taken to fund the single-payer system have risen significantly:

Health care in Canada is not “free.” Canadians often misunderstand the true cost of our public health care system. This occurs partly because Canadians do not incur direct expenses for their use of health care, and partly because Canadians cannot readily determine the value of their contribution to public health care insurance because there is no “dedicated” health insurance tax.


Magical MAGI: Defining Who Gets ObamaCare Subsidies

A person who buys an ObamaCare health insurance policy can get a tax credit (subsidy) if his household’s Modified Adjusted Gross Income (MAGI) puts him below 400 percent of the Federal Poverty Level (FPL).

But what is a household?

It isn’t easy figuring out those magical MAGI groups when ObamaCare premium subsidies depend on family size and the definition of a family is, shall we say, rather flexible. As the Wisconsin training handout puts it, “the new MAGI methodology introduces tax relationships into the way we build BC+ [BadgerCare Plus] household composition. Under MAGI, household composition is formed using either ‘tax rules’ or ‘relationship rules.’ The use of tax rules versus relationship rules is based on whether or not the individual for whom the assistance group is being formed intends to file taxes or is a tax dependent.”

The manual goes on to say that it is important to remember that because Assistance Groups are person specific, “the household composition for each Assistance Group must be examined one person at a time and each Assistance Group is formed around a target (the individual who is requesting assistance). The target’s assistance group is formed based on that target’s age, marital status, tax filing status, tax relationships and/or family relationships.”

If you have a “target” living in a spare room or basement, here’s a flowchart that might come in handy:


Hospitals Charge More than Double What Physicians’ Offices Charge for the Same Services

Have you ever wondered why hospitals are buying up physician practices? Behind all the chatter about Accountable Care Organizations (ACOs) and Value-Based Purchasing (VBP) and who knows how many other TLAs (three-letter acronyms) lies something much more elementary: Arbitraging the price differences between doing a procedure in a physician’s office versus in a hospital. New research has quantified the differences:

doctor-mom-and-sonAverage hospital outpatient department prices for common imaging, colonoscopy and laboratory services can be double the price or more for identical services provided in a physician’s office or other community-based setting, according to a study from the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

The average hospital outpatient department price for a basic colonoscopy, for example, was $1,383 compared to $625 in community settings, according to the study. For a routine blood test — a comprehensive metabolic panel — the average price in hospital outpatient departments was triple the price — about $37 compared to $13 in community settings.

(National Institute for Health Care Reform)