Cancer cases increase 230% in 30 years….WHY?

53% of Consumers ‘Oblivious’ to Healthcare Costs


John Commins, for HealthLeaders Media , December 13, 2012

Most consumers have no idea how much they pay for healthcare beyond premiums and co-pays.

Until they do it will be difficult to temper the rate of cost growth in healthcare, says Paul H. Keckley, PhD, executive director of the Deloitte Center for Health Solutions.

“Our surveys show that about 53% of consumers are oblivious to costs and tend to go along with whatever is suggested. Only one in 10 is inclined to be price sensitive,” Keckley says.

“That is a pretty bad starting point for reducing healthcare costs, especially if the incentives in the system are for doing more, which leads doctors and providers to recommend tests and surgeries that shouldn’t be done, or even medications that don’t work.”

A study from Deloitte—The hidden costs of U.S. health care: Consumer discretionary health care spending—finds that out-of-pocket expenses accounted for about 13% ($402 billion) of the estimated $3.2 trillion in healthcare spending in 2010.

Government spending accounted for 40% of the spending. Of this, Medicare accounted for 16% ($527 billion); Medicaid, around 13% ($404 billion); and other public spending just under 11% ($346 billion). Private insurance paid for 27% of expenditures ($861 billion).

“Understanding healthcare spending through the lens of the household is completing the picture,” Keckley says. “We hear about national health spending, but it tends to conveniently fall into buckets that are defined by Medicare or commercial health insurance plans. And yet much of the impacts on the households’ spending are the things that are not showing up in claims.”

The Deloitte study estimates that 60% of healthcare expenditures are “necessary expenditures” that include: $829 billion for physician, clinical, and other professional services and account for 26% of total expenditures. Hospital care accounted for $814 billion, or 25% of total expenditures, and prescription drugs accounted for $259 billion, or 8% of total expenditures.

The remaining 40% of total expenditures are in long-term care, retail products, supervisory care, and direct administrative costs, the study estimates. Direct and indirect discretionary costs for healthcare totaled $2,898 per capita in 2010.

Major categories included out-of-pocket spending by consumers on professional services (24%), retail products and services (19%), long-term care (10%), prescription drugs (8%), and hospital care (4%). For the average household earning around $50,000 out of pocket direct costs average about $1,300 per-capita.

Keckley says the healthcare industry needs to give consumers a true picture of their healthcare costs, both what is covered and what is not.

“Most of the information that is out there for consumers is not very useful,” he says. “If you think about it, we should be able to, with the technologies we have now, before you walk up to the prescription counter know what the alternatives are for medications and what the cost would be for my insurance product.”

“We should know before elective procedures what the over/under is based on some simple figures. If you are having a colonoscopy or some of the more simple things even that level of transparency of cost available to people in a way they can use it is virtually non-existent. And the industry pushes back on it.”

“Joe SixPack wants to know the cost. Tell me what the anesthesiologist, the surgeon, the OR, are going to cost. Tell me what it is going to be out of pocket. Don’t send me an explanation of benefits 10-30 days after the event and tell me what I am going to owe. That is not rational,” he says.

While educating healthcare consumers and providing price transparency have to be a priority Keckley says they’re not enough.

“There have to be consequences for those behaviors. Both reinforcing positive behaviors and punishing wrong behaviors. The challenge there is the science. What is the right combination of sticks and carrots in a complex consumer environment?” he says. “It is not a simple environment the way people think. If you have limited resources or a difficult risk profile the sticks and carrots may be quite different than if you are a young healthy strapping flat belly.”

“There is an interesting domain emerging in health services research called behavioral economics where we are really trying to map this to individuals with certain characteristics and what is the right blend of sticks and carrots and how do you deliver it and how much is technology and how much is money,” Keckley explains.

“So it is the science around sticks and carrots that our policy makers don’t have in place now and for a variety of reasons our ideological divides force overly simplistic and sometimes counterproductive results. That is what we ought to have a holy war about. The system has the money but doesn’t spend it the right way to get the right results.”

The study also found that:

  • Healthcare costs for seniors (65+) dominated health expenditures in 2010, comprising 37% ($1.19 trillion) of total healthcare spending.
  • The value of supervisory care provided to a friend or family member, an indirect cost, was estimated at $1,592 per capita. And that cost appears to impact seniors, small families and low-income groups the most.
  • Direct and indirect out-of-pocket spending is highest among seniors, at $440 billion or 37% of the total spending in this age group. Under-25 year olds spent $157 billion (25%); those aged 25–44 spent $121 billion (22%); and 45-64 year olds spent $179 billion (21%).
  • 35% ($1.12 trillion) of total healthcare expenditures are attributed to individuals living in families with annual incomes of <$25,000. Highest-income families with annual incomes of $100,000 or more account for 17% ($534 billion). Hospital care is the largest expenditure for all income groups (26%) with the exception of the highest income group (20%).
  • Indirect and direct OOP costs comprise a higher percentage of healthcare spending for lower-income individuals than higher-income individuals. Thirty-two percent of healthcare spending for the lowest income group is paid out of pocket compared to 24% for highest-income families.
  • Nearly 80% (an imputed $492 billion) of costs for healthcare goods or services additional to the NHEA were for the key area of supervisory care. Supervisory care is the contribution made by family members and community caregivers – caring for individuals with chronic health problems or disabilities at home – which replaces care that might have otherwise been performed by paid professionals such as nurses or home healthcare workers.
  • The total value of the provision of supervisory care ($492 billion) is more than three times the total spending on nursing homes ($143 billion) and on home healthcare ($70 billion).
  • Almost all supervisory care is provided to individuals living in lower-income families and those living in two-person family units. Supervisory care is most evident in the seniors age group.

John Commins is an editor with HealthLeaders Media.


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This entry was posted on December 14, 2012 by in Uncategorized and tagged , , , , .
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