A short while ago, I discussed the biggest threats to the financial integrity of middle-class families on Long Island. These were listed as housing costs, taxes, healthcare and possibly college debt. While Long Island is famous for its notorious high cost of living, the housing and taxes are largely regional and state-based issues. However, healthcare is more a national issue, but nonetheless just as serious, if not more serious.
The factor that makes healthcare costs so dangerous is its unpredictability. When dealing with property taxes, you should know what the taxes are, and the annual increases are limited to two percent per year per State law. Anything above that requires voter approval, such as school taxes.
With college costs, you probably know while you are applying to colleges, what kind of tuition and fees you are dealing with, whether you’ll get financial aid, and what kind of debt you’ll be managing upon graduation.
However, with healthcare, the costs are more complicated and difficult to predict. This begins with whether one even has health insurance, what the premiums are, what is covered, and what the copayments, non-covered services and deductibles amount to. One prolonged hospitalization or extended illness can be financially devastating.
Managing a cancer diagnosis is one example. Access to quality healthcare is important, and fortunately Long Island has abundant quality healthcare. Therefore, for the most part, I’ll be discussing healthcare costs.
According to https://pubmed.ncbi.nlm.nih.gov, the United States has the most expensive healthcare system in the world, with per capita health expenditures far above those of any other nation. Many would question if Americans are getting their money’s worth.
For many years, like college, healthcare costs have been rising well above the overall rate of inflation. There is little doubt that healthcare costs are a significant drain on most individuals and families. In the news are stories of catastrophic illnesses causing severe financial hardship, even bankruptcy, for some people.
The United States accounts for more than 40% of all global health spending. “Health care almost always outpaces inflation, and health-care costs grow faster than the economy,” said Cynthia Cox, vice president at the Kaiser Family Foundation.
“That’s why it’s representing a larger and larger share of the economy,” adds Ms. Cox.
According to a 2021 employer health benefits survey, annual premiums for employer-sponsored family health coverage reached $22,221 that year, up 4% from 2020, with workers on average paying $5,969 toward the cost of their coverage.
The average premium for family coverage has increased 22% over the last five years and 47% over the last ten years. These costs never seem to stabilize, which forces consumers into a defensive posture to absorb the costs.
The U.S. spends about 8% of its health care dollar on administrative costs, compared to 1-to three percent for many other countries, according to a study by JAMA (Journal of the American Medical Association). Administrative costs in healthcare usually include hiring and credentialing healthcare professionals, billing costs, maintaining medical records, IT costs, processing claims and more. Administrative costs are higher for commercial carriers as compared to Medicare.
Then there is the cost of prescription drugs. Americans pay almost four times as much for pharmaceutical drugs compared to other developed countries. In many countries, prices for drugs and healthcare are at least partially controlled by the government. In the U.S., it is more of a free market system, but without the competition that would typically keep costs under control.
Any rise in healthcare costs can be devastating to the economy. First, you have the increased insurance premiums that employers must pay, a share of which gets passed on to the employee. Then you have the copayments and deductibles that come out of pocket. Finally, you have the indirect effects.
For example, several Long Island School Districts recently cited increased healthcare premiums for their teachers and staff as another reason why they had to increase school taxes. While the Obama Administration likes to tout the benefits of the Affordable Care Act, the premiums
are based on receiving a federal subsidy linked to income. The application for the AFC is tied to IRS records, something not all people understand. If your income suddenly rises toward the end of a calendar year, it is very likely the Government could ask for a return of the subsidy, since it accesses total yearly income per the IRS.
This often-unexpected event could potentially eliminate the benefit of a lower premium based on a subsidy. The AFA was effective in getting more people enrolled in health insurance, but not in lowering costs or premiums.
According to www.debt.org, healthcare costs in the US are skyrocketing toward four trillion a year. Nearly one-third of GoFundMe campaigns are dedicated to raising money to help pay medical debt. As many as 62% of bankruptcies include significant medical debt, according to a study by the Maine Law Review. For those fortunate enough to have employer-based coverage, most covered workers contribute 17% of the premium for single coverage and 28% of the premium for family coverage. Covered workers in small firms contribute a higher percentage of premiums for family coverage as opposed to their counterparts in larger firms (Kaiser Family Foundation).
Most covered workers must pay a share of the cost when they use health care services. The 2021 average deductible of $1,434 is 92% higher than the average annual deductible of $747 in 2011, according to the Kaiser Family Foundation.
According to Fidelity Investments, a healthy couple retiring at age 65 this year can expect to spend $285,000 on healthcare in retirement. That’s pretty extraordinary when you consider most retirees have coverage through Medicare, as well as a supplemental and prescription plan.
New York State also passed legislation to allow volunteer fire departments to charge individuals for ambulance services and emergency medical care. In the past, a patient in need of emergency services didn’t have to worry about calling 9-1-1 and then getting a bill. However, it’s now possible you could receive a bill for emergency care and transport to a hospital, something unheard of just a few years ago.
In a new national survey by West Health and Gallup, Americans have borrowed an estimated 88 billion dollars to pay for health care (https://www.westhealth.org/).
In addition, Americans coughed up $126 billion from savings to cover unexpected medical costs. What’s also disturbing, one in four Americans had a health problem and didn’t seek care because they couldn’t afford it. Meanwhile, 48 million Americans were unable to pay for a prescribed medication. These are dire statistics in a nation as prosperous as the US. Several explanations have been offered for continuously rising health care costs. These include new technology, administrative costs, the absence of cost-containment measures, the apparent lack of a competitive market place and possibly the costs associated with defending malpractice litigation.
Fortunately, there has been some progress to partially protect patients from these punitive costs. In August, 2022, Congress passed The Inflation Reduction Act of 2022, which has provisions to address health care costs. For this year, the cost of Insulin paid through Medicare Part D will be capped at $35 per month. Additionally, Medicare Part D will be required to pay for the shingles vaccine. Finally, beginning in 2026, Medicare will be able to negotiate prices for certain high-priced drugs. Medicare will also place caps on other drug prices, based on an inflation index, with the drug manufacturers providing the rebate directly to Medicare.
There is also the No Surprise Medical Billing Act, which became effective Jan 1, 2022. The No Surprises Act is designed to reduce instances where patients face unexpected medical bills due
to receiving care from an out-of-network facility or provider during an emergency. Patients are also protected from surprise billing when a participating physician refers a patient to a non-participating provider (out-of-network) and the patient did not consent to the treatment or was unaware the provider was out-of-network. People with Medicare and Medicaid already enjoy these protections and are not at risk for surprise billing. For more on the No Surprises Act, see “No Surprises: Understand your rights against surprise medical bills | CMS.”
There have also been some developments as far as medical debt is concerned. When your unpaid medical bill is sent to a collection agency, the agency will report it to one or more of the three major credit bureaus. The credit bureaus will then add the collection to your credit report, which can damage your credit score. However, as of July 1, 2022, the three credit bureaus will now provide a year-long grace period before that debt appears on your credit report. If you pay off the debt before the year is out, it won’t appear on your credit report at all. This modification can buy you enough time to negotiate the debt or pay it off.
The Inflation Reduction Act, the No Surprise Medical Billing Act, and the longer grace period for medical debt are all positive developments. However, they are patchwork solutions which will likely be insufficient to protect patients from the avalanche of bills that will befall them if dealing with a catastrophic illness. The ability of Medicare to negotiate drug prices is still several years away. Gary West, founder and chairman of West Health, has offered three common sense reforms that could be implemented to provide further protection from out-of-control healthcare costs. They are:
1. Require Medicare to directly negotiate drug prices with pharmaceutical companies (in progress per the Inflation Reduction Act)
2. Implement easy-to-understand healthcare pricing transparency
3. End our conventional fee-for-service payment system, which rewards providers for their quantity of services (not quality or efficiency) and move to a patient-focused, cost-effective, value-based care system
Mr. West makes some good points. Since publishing his recommendations, Congress has taken the initiative to have Medicare negotiate drug prices and also place caps on certain drugs, including insulin.
Also, there is no question that healthcare pricing transparency could create a more competitive marketplace for healthcare which would likely benefit patients.
Imagine trying to purchase a car if you couldn’t compare the prices for the same car at different dealerships, and the dealerships themselves kept prices a closely guarded secret.
The same principle should apply to medical care. Knowing the price of a hospital stay, procedure or test, would empower patients to be more selective when planning for care. On Long Island, the ambitious consolidation of hospitals and medical offices has done little to stabilize or lower costs.
The third proposal is far more complicated because we’re talking about a complete restructuring of how healthcare bills are calculated; a value-based system versus a consumption-based system. Currently, it is all about volume of services, and our healthcare system is poorly equipped to keep people healthy by emphasizing education, preventive care cost efficiency.
What might be more palatable in the short term, is experimenting with a patient-focused program, where patients receive discounts on their premiums for receiving healthy checkups.
It would be wonderful if patients, who are the ultimate consumers in our system, could somehow be incentivized to save costs through healthy living initiatives. Such initiatives could include stopping smoking, changing their diet, watching wellness webinars, or joining a fitness program. It would be similar to how good drivers save money on auto insurance premiums.
Any policy changes at the State or Federal level, whether it’s price transparency or introducing a value-based system, would be better than accepting a status quo that results in the kind of statistics mentioned above, including the billions in out-of-pocket costs and the medical debt. Patients need to know what their medical care will cost, that it will be covered, and that they won’t be forced into debt or bankruptcy because they became sick.
Lastly, receiving premium discounts for adopting healthy living initiatives should be considered.