Tag: "Health Care Costs"

Flash GDP: Health Services Over One Third of GDP Growth

BEAThis morning’s advance (flash) estimate of GDP for the first quarter (usually subject to significant future revision) showed very weak growth dominated by spending on health services. Health services spending of $19.5 billion (annualized) comprised over one third of GDP growth. However, there was shrinkage in personal consumption expenditures on goods, private domestic investment, and exports. This meant personal expenditures on services grew almost twice as much as GDP growth. Growth in spending on health services amounted to a little less than one fifth of growth in services spending. Nevertheless, the quarterly growth in spending on health services indicates health services continues to consume a disproportionate share of (low) growth (Table I).

20160428 GDP T1

Are Prescription Drug Prices Becoming As Meaningless As Hospital Charges?

Professor Jack Hoadley of Georgetown University recently gave an excellent presentation discussing prices of prescription drugs. Two slides stand out. First, a slide showing how much prescription spending is controlled by insurers and governments versus patients directly:

20160415 Rx Prices

As recently as 1990, patients controlled over half of drug spending. Today, it is under 20 percent. Has this cost shift made drugs more “affordable”? Obviously not: 8 percent of patients do not take medicines as prescribed, because of cost. Hillary Clinton promises to impose government price controls on drugs if she becomes president.

U.S. Health Spending Not An Economic Burden

HSA(A version of this Health Alert was published by Forbes.)

Health spending consumes a higher share of output in the United States than in other countries. In 2013, it accounted for 17 percent of Gross Domestic Product. The next highest country was France, where health spending accounted for 12 percent of GDP. Critics of U.S. health care claim this shows the system is too expensive and a burden on our economy, demanding even more government intervention. This conclusion is misleading and leads to poor policy recommendations, according to new research published by the National Center for Policy Analysis (U.S. Health Spending is Not A Burden on the Economy, NCPA Policy Report No. 383, April 2016).

Discussing health spending in dollars, rather than proportion of GDP, the report notes Americans spent $9,086 per capita on health care in 2013, versus only $6,325 in Switzerland, the runner-up. (These dollar figures are adjusted for purchasing power parity, which adjusts the exchange rates of currencies for differences in cost of living). This big difference certainly invites us to question whether we are getting our money’s worth. However, it is not clear that this spending is a burden on Americans, given our very high national income.

CPI: Most Medical Price Hikes Stall

The Consumer Price Index for March indicates that medical price inflation matched changes in other prices charged to consumers, with a slight uptick of 0.1 percent. Prescription drugs (0.5 percent increase), nursing homes and adult day care, eyeglasses, and health insurance (all with 0.4 percent increases) stood out as continuing to experience higher inflation than other items. Prices for many health goods and services actually dropped.

However, over the last twelve months, medical prices faced by consumers have grown much faster than non-health prices: 3.3 percent versus 0.6 percent. Prescription prices increased 3.4 percent. However, inpatient hospital services and health insurance prices increased much faster, by 5.9 percent and 6.0 percent.

When we compare the medical components of the CPI with those in the Producer Price Index, it appears that hospitals, not drug makers, are shifting more prices directly onto consumers.

(See Table I Below the fold.)

PPI: Pharmaceutical Prices Up Amid Deflation

BLSDeflation in the Producer Price Index (PPI) continued last month, as the PPI for final demand dropped 0.1 percent from February. Prices for final demand goods, less volatile food and energy, increased 0.2 percent. Most prices for health goods for final demand were flat. The exception – again – was pharmaceutical preparations, for which prices increased 0.4 percent.

With respect to final demand services, for which prices dropped 0.2 percent (or increased just 0.1 percent, less trade, transportation, and warehousing), prices of medical services changed little. Even the price of health insurance remained flat, after an increase in February.

With respect to goods for intermediate demand, prices for chemicals (which go into pharmaceutical preparations) increased by just 0.1 percent, while prices of biologic products (including diagnostics) dropped the same percentage. With respect to services for intermediate demand, prices for health insurance remained flat, although prices for other intermediate services declined.

Looking back over the 12-month period, the price increase of 9.8 percent in pharmaceutical preparations continues to stand out like a sore thumb. Political agitation against drug prices is unlikely to go away soon. (See Table I below the fold.)

Four Options for Saving Medicare from Collapsing under its Own Weight

The 50-year old Medicare program is showing its age. Medicare accounts for about one-fifth of medical spending, or about 3.5 percent of gross domestic product (GDP). Over the years Medicare spending per capita has exceeded income growth in the economy. Over the next 75 years the Medicare Trustees estimate Medicare spending as a percentage of GDP will rise anywhere from about 6 percent to just above 9 percent. The Congressional Budget Office baseline put the estimate even higher — about 12.5 percent.


Chicken & Egg in Consumer-Driven Health Care

debtAn advocate of consumer-driven health care will often be challenged by this question: “So, when I am hit by a bus, or have a heart attack or stroke, or am suffering from dementia, you want me to go shopping around for medical care?”

Obviously not. Nevertheless, this is a serious challenge and invites the question: How much of our health spending can be meaningfully controlled by discriminating patients? Researchers at the Health Care Cost Institute (HCCI) recently addressed this. The HCCI has a unique advantage in producing such research, because has access to a database of claims for employer-based plans run by a number of insurers.

The research categorized “shoppable” versus “non-shoppable” services. It found:

  • At most, 43 percent of the $524.2 billion spent on health care by individuals with employer-sponsored insurance in 2011 was spent on shoppable services.
  • About 15 percent of total spending in 2011 was spent by consumers out-of-pocket.
  • $37.7 billion (7 percent of total spending) of the out-of-pocket spending in 2011 was on shoppable services.

So, it looks like only 7 percent of health spending is subject to price-conscious patients spending their dollars wisely. The researchers concluded that “Overall, the potential gains from the consumer price shopping aspect of price transparency efforts are modest.” That would be true if we were talking about just forcing price transparency on the current benefit design. However, that is a distraction.

Innovation and Self-Insured Employer Plans

About 175 million people are covered by an employee health plan through their job or the job of a loved one.  More than half of people in employee health plans work for an employer that is self-insured or partially self-insured.  Self-insured plans are ones that are subject to federal law rather than the patchwork of state regulations that insurers must follow.  When employers self-insure, they take on the risk of their employees medical needs and generally have stop loss coverage to guard against any one worker or dependent have exceptionally high medical bills. Whereas insurance is somewhat of a stodgy business, employers themselves are looking for solutions rather than premium hikes year-after-year.  Most of the innovation that occurs in health coverage are experiments being conducted by self-insured employers. These include decision-support tools to make enrollees more informed consumers of medical care. Employers are dumping a ton of money into employee Health & Wellness programs, health risk assessments and chronic disease management.  A few employer plans, like North Carolina-based like HSM Solutions, are outsourcing some medical care for high cost procedures to countries abroad.  CalPERS, the public employee union, has initiated experiments in reference pricing to provide beneficiaries an incentive to seek out lower-cost providers.  These are all examples of self-insured plans looking for solutions to the problem of high medical costs.

A ‘Free Health Clinic’ for Montana State Employees

Before he left office, then-Montana Gov. Brian Schweitzer decided Montana’s 11,000 state workers, retirees and their dependents needed an employee health clinic. Before leaving office he had one created without consulting the legislature. For those of you who have not heard of the concept, it’s sort of like the school nurse, except there are doctors and real medical equipment involved. At most employee health clinics, physician visits are either free or involve no cost-sharing. Montana employees aren’t required to use the clinic; they can continue to see their own doctors with the normal cost-sharing.

2015 GDP: Health Services Spending Grew More Than Twice As Fast as Non-Health GDP

BEALast Friday’s release of the third estimate of Q4 Gross Domestic Product and annual GDP confirmed spending on health services grew at more than twice the rate of growth in non-health GDP in 2015.

For Q4, the third estimate significantly reduced the share of GDP allocated to health services from the previous second estimate (Table I). At $18.7 billion (annualized), growth in health services spending accounted for almost one fifth of GDP growth. This was sa much faster rate of growth (3.6 percent) than for non-health GDP (2.1 percent). Almost all Q4 GDP growth was in services, not goods. Personal consumption expenditure on goods actually dropped.

2016 GDP TI