Why health care eats more of your pay­check ev­ery year

Daily Local News (West Chester, PA) - - BUSINESS - By Tom Murphy AP Health Writer

Mil­lions of Americans are find­ing out this month that the price of their health in­sur­ance is go­ing up next year — as it did this year, last year, and most of the years be­fore that.

And it’s not just that the price is go­ing up, it’s that it goes up faster than wages and in­fla­tion, eat­ing away at our abil­ity to pay for other things we want (beer, tele­vi­sions, va­ca­tions) or need (rent, heat, food).

Does it have to be this way? Why does health care grow so much faster than al­most any other spend­ing cat­e­gory so con­sis­tently? And will it ever stop?

“At some point it’s not go­ing to be worth it to have less food, less travel in or­der to spend money on health care,” said Louise Sheiner, a health econ­o­mist at the Brook­ings In­sti­tu­tion. “That’s what re­ally stops it.”

In­sur­ance pre­mi­ums, which re­flect spend­ing on medicines, doc­tor vis­its, tests and hos­pi­tal stays, have climbed 213 per­cent since 1999 for fam­ily cov­er­age pur­chased through an em­ployer, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion, which stud­ies health care. Wages, by com­par­i­son, have risen 60 per­cent, while in­fla­tion is up 44 per­cent.

Here’s why the price of health care doesn’t grow like, say, the price of dish­wash­ers or blue jeans — and why that’s un­likely to change any­time soon.

It’s hard to shop for health care

In­sur­ers and em­ploy­ers have been try­ing for years to make pa­tients bet­ter health care shop­pers and force doc­tors and hos­pi­tals to com­pete on price. They’ve raised de­ductibles or out-of-pocket costs on cov­er­age and given tools to pa­tients so they can com­pare prices and qual­ity.

The idea is that pa­tients be­come more mo­ti­vated to price shop when they first have to pay sev­eral hun­dred dol­lars to­ward the bill due to a high de­ductible. Many see this push as a key to curb­ing health care spend­ing, since in­sur­ance tends to hide the full cost of care from the pa­tient.

This can work ... for small stuff, said Renya Spak of the ben­e­fits con­sul­tant Mercer. Pa­tients will shop if they need an MRI exam on their shoul­der. But Spak isn’t con­vinced it will do much for things like surg­eries, when the in­surer or em­ployer will wind up cov­er­ing much of the bill any­way and the best

deal might in­volve travel away from fam­ily.

“It’s not hu­man na­ture to be ra­tio­nal thinkers about health care cost de­ci­sions,” she added. “It will never be just like buy­ing a lawn­mower.”

Con­sumers also pri­or­i­tize health care pur­chases over other buy­ing de­ci­sions, espe­cially if they have ba­sics like food and shel­ter cov­ered. You’ll have back surgery to al­le­vi­ate chronic pain be­fore you take that long-awaited trip to Paris.

“What good is a bet­ter house if you are too sick to en­joy it?” said Charles Roehrig, an econ­o­mist and vice pres­i­dent of the non­profit Al­tarum In­sti­tute’s Cen­ter for Sus­tain­able Health Spend­ing.

Tech­nol­ogy doesn’t help

A car­maker can knock down the cost of mak­ing a ve­hi­cle by re­plac­ing auto work­ers with ro­bots in parts of the assem­bly line. Treat­ment ad­vances in health care are geared more to­ward mak­ing some­thing more ef­fec­tive, not cheaper, noted Paul Fron­stin, an econ­o­mist with the Em­ployee Ben­e­fit Re­search In­sti­tute.

A de­vice maker may come up with a new hip that im­proves a pa­tient’s qual­ity of life, but it’s likely more ex­pen­sive and the surgery might re­quire the same num­ber of doc­tors and nurses or more. A drug­maker might pro­duce a new treat­ment that dra­mat­i­cally im­proves a con­di­tion but it may come with a bill of more than $50,000 in the mean­time.

De­vice and drug­mak­ers have been pro­duc­ing a steady stream of new prod­ucts for con­sumers, and in­sur­ers that pay the bills have a lim­ited abil­ity to keep prices for those de­vices and drugs down.

“Ev­ery year, it’s kind of like Christ­mas, they de­liver all this new stuff and of course they de­liver it at high prices and in­sur­ance cov­ers it,” said Mark Pauly, a health econ­o­mist with the Univer­sity of Penn­syl­va­nia’s Whar­ton School.

How it adds up

Peo­ple with cov­er­age through their em­ploy­ers should ex­pect pre­mium hikes of 5 per­cent or 6 per­cent next year, de­pend­ing on where the em­ployee lives and what ad­just­ments a com­pany makes. That’s dou­ble the fore­cast for in­fla­tion next year.

And the ris­ing rates may keep them from get­ting a

raise, too. Em­ploy­ers of­ten pay most of the bill for em­ployee cov­er­age, leav­ing them less money to in­crease salaries when rates rise.

Cus­tomers shop­ping on the Af­ford­able Care Act’s pub­lic in­sur­ance ex­changes will see pre­mium hikes of 20 per­cent or more in many mar­kets, though those in­creases aren’t just be­cause of ris­ing health care spend­ing. The ex­changes have seen wild price swings in part be­cause in­sur­ers are still try­ing to bal­ance out claims they pay in this rel­a­tively new cov­er­age.

All told, health care costs, in­clud­ing the in­sur­ance bill and money paid out of pocket, made up 7.8 per­cent of the average con­sumer’s to­tal ex­penses in 2015, up from 5.7 per­cent in 2006, ac­cord­ing to the Bureau of La­bor Sta­tis­tics.

Mean­while, much big­ger por­tions of per­sonal bud­gets like hous­ing, food and trans­porta­tion all slipped.

When does this end?

Health care spend­ing now ac­counts for more than 17 per­cent of the U.S. econ­omy. In 1980 it was just half that.

Econ­o­mists and ben­e­fits ex­perts say this trend has to

slow at some point, or con­sumers won’t have enough money left to spend on things un­re­lated to health care. Some think big, dis­rup­tive changes in how we buy and use care may be needed.

That might mean that more in­sur­ers could dras­ti­cally re­strict a pa­tient’s doc­tor choice in or­der to gain bet­ter ne­go­ti­at­ing lev­er­age over the cost of care, a trend that is grow­ing on the ACA’s ex­changes.

Mercer’s Spak thinks em­ploy­ers need to lead, since they cover so many peo­ple. She noted that some com­pa­nies have started con­tract­ing di­rectly with big hos­pi­tal sys­tems for health care, cut­ting out the in­sur­ance mid­dle­man.

Sheiner, the Brook­ings In­sti­tu­tion econ­o­mist, says health spend­ing may slow if drug and de­vice mak­ers stop de­vel­op­ing new tech­nol­ogy or drugs as quickly. But she thinks health care will keep climb­ing un­til peo­ple de­cide they aren’t go­ing to burn any more of their pay­check on it — and we’re not there yet.

“You never say never, but I don’t think we should ex­pect that any time soon,” she said.


A phar­macy tech poses for a pic­ture with pre­scrip­tion med­i­ca­tion at a phar­macy in Ed­mond, Okla. Mil­lions of Americans are find­ing out this month that the price of their health in­sur­ance is go­ing up next year — as it did this year, last year, and most of the years be­fore that.


The Health­Care.gov 2017 web­site home page is shown on a lap­top in Washington. Health in­sur­ance costs will be on the rise again in 2017, just like they have been for sev­eral years now.

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