Is the Rise in Healthcare Costs Finally Leveling Out?

Healthcare cost increases are projected to continue slowing in 2016. Although still on course to easily outpace inflation, according the bureau of labor statistics, consumer healthcare inflation averaged only 2.7% in 2015, a significant decline from 4.7% the latter half of 2007[1].

Although consumer spending is only one portion of overall healthcare spending which also includes employer-sponsored healthcare plan spending as well as government healthcare spending, the PWC Health Research Institute Paper reported a 6.8% increase in healthcare spending in 2015, compared to 11.9% in 2007[2]. While current healthcare spending is estimated at 17.4% of GDP, experts have predicted that this slowdown in healthcare cost increases is overdue. “Medical costs cannot continue to grow faster than per capita incomes indefinitely. As we get closer to 25% of GDP, spending will have to be constrained,” said Tom Getzen, executive director of the International Health Economics Association and professor of insurance and healthcare management at Temple University. “As health spending grows faster than the rest of the economy, resistance to further increases can begin to slow down the growth—or bend the cost curve.” [3]

The PWC Health Research Institute report further identifies three factors expected to lower the rate of growth for healthcare costs:

• The coming “Cadillac tax”. In 2018, the Affordable Care Act’s excise tax on high-value plans, is slated to begin. According to the report, many companies are trying to avoid paying the 40 percent tax on health plan premiums over $10,200 for individual coverage and $27,500 for self and spouse or family coverage, by increasing the amount that employees must pay, thereby allowing the companies to remain under the limits of the “Cadillac Plans”.

• Virtual care. New technologies such as remote monitoring are being used to improve patient outcomes and bring down treatment costs.

• New types of Advisory Services. Advisory services (such as those provided by BridgeHealth) provided by consultants, TPA’s and employers are increasingly being used to provide information and tools to help employees make good choices when seeking healthcare.

On the other hand, the report also lists factors expected to increase the cost of healthcare:

• New classes of pharmaceutical drugs.

• The need for Cybersecurity. The threat of hackers and widespread security breaches forcing healthcare providers to bear the cost of the technology and personnel required to securely protect medical data is expected to add significant additional costs to healthcare providers and administrators.

While the above factors are certainly positive to the extent that they can bring down the growth trajectrory of medical costs, at BridgeHealth, we believe we have another tool in our toolbox with the capacity to dramatically lower healthcare costs while maintaining quality care. That tool, is the bundled payment system. In a bundled payment system, prices are build around an episode of care and are pre-negotiated, which allows patients and their employers to know the exact price of a procedure in advance. Pre-negotiated procedure costs have another major benefit for the patient: under bundled payment agreements, should any complications occur, the hospital and the doctors are now responsible for what would formerly require additional costs and more money out of the patient’s pocket.

BridgeHealth helps Plan Sponsors realize significant case rate savings, and they only work with hospitals rated in the top 25 percent nationally[4]. High quality surgical care together with pre-negotiated bundled prices will allow for further slowing of rising healthcare costs and help us as Americans keep the greatest healthcare system in the world.

1) – Medical Cost Trend: Behind the Numbers 2016, by Price Waterhouse Cooper Health Research Institute
2) – Hospital-acquired Condition Reduction Program by Centers for Medicare & Medicaid Services
3) – How painful with health care costs be in 2016?, CBS News
4) – Hospital Quality Scoring and Rating Methods, Comparion Carechex