Feel the Burn

Last month PricewaterhouseCoopers released its predictions for Medical cost trends in 2011. The target audience for this report is employers, but it is very enlightening for everybody else. Unsurprisingly health care costs for 2011 are projected at a whopping $3 trillion, but the good news is that the growth in medical costs is projected to be only 9%, down half a percentage point. The good news is of course for employers since these are projections for employers’ costs. How about the rest of us? Will the news trickle down to employees? They sure will, but not exactly as you may think.

PwC distills the complexity down to three factors pushing costs down (deflators) and three factors pushing costs up (inflators) as follows (keep in mind that these are employer costs):

Deflators

• Move to benefits designed to offload cost to employees in the form of higher deductibles, co-insurance and higher co-pays.
• Increased utilization of generics
• Reductions in COBRA benefits due to better economy and expiration of government subsidies

Inflators

• Cost shifting to private insurers due to Medicare payment cuts to hospitals
• Consolidation of private practices from a “cottage industry” to large groups with significant bargaining power
• HIT Meaningful Use expenditures passed on to payers

If we look at the “deflators”, other than generics utilization and the commendable faith in the US economy, coupled with complete disregard for the unemployed rabble, it seems that one’s deflator is another’s inflator. Consumers will be spending a lot more on this intricate web of deductibles, co-pays (flat fees) and co-insurance (a percentage of costs). That is good for us. We will finally develop sensitivity to the real costs of health care as we become empowered to manage our own health, or lack thereof. To meet this need, there will be a vast array of iPhone applications to guide us away from what we need and towards what best deflates our employer’s costs. Make no mistake though; employers by definition have the best interests of their employees at heart. Healthy, happy well-adjusted employees are good for the bottom line, just like happy cows make good cheese in California. This is why our employers will help us with these new responsibilities and hire all sorts of wellness management firms to keep us healthy. Firms like Optum Health who has this lovely maintenance center they install at your workplace where you step in and all your wellness parameters get measured and reported. You can be sure now that someone is always watching over you. May not be that guardian angel grandma was talking about, but there’s definitely someone there.

With the exception of the perennial complaint of Medicare cost shifting, the “inflators” deserve our undivided attention, particularly since the net effects will be trickling down uninhibited directly to our cost-offloading, patient-driven “benefits”. Flying in the face of most luminaries’ published opinions, PwC projects that the anticipated demise of Dr. Marcus Welby will fail to deliver the much touted “economies of scale”, and instead will just drive health care costs up. Absolutely shocking! Since this particular report targets business leaders, it is silent on the effects of health care Walmartization on actual quality of care. Let your imagination roam freely here…..

The most surprising “inflator” is the cost of HIT adoption and Meaningful Use of EHRs, which PwC is expecting to be passed on from providers to payers. Not only that HIT is supposed to increase a provider’s efficiency and reduce costs of health care delivery, but I was under the impression that taxpayers already footed that bill to the tune of 20 or 30 billion dollars (who’s counting). Turns out that this was just a down payment and the monthly invoices are in the mail, attached to our brand spanking new premiums.  Yes, I know, it will take several years to see the benefits. The premiums at Kaiser, which started its epic HIT journey in 2003, are not showing any signs of relief. So we wait…..

Here is the beauty of our health insurance system in its true magnificent simplicity:  Both “deflators” and “inflators” are driving prices of health insurance up for working folks. And this, we are told, is very good for us. Well, we all know exercise is good for you, and at least one part of every American is about to get a vigorous workout – the wallet. Can you feel the burn?