What’s behind rising health care costs?
State has seen ‘growing gap’ in per-person medical spending
If you have noticed that health care costs have soared over the last few years, you’re not alone. But the reasons for higher costs are part of a complex tapestry.
Ted Doolittle, Connecticut health care advocate, notes “Health care affordability is critical for the health and outcomes of Connecticut residents, and to the longevity and effectiveness of our health care system,” yet for many residents, questions remain on costs and accessibility.
Here are some answers, including from interviews and information shared in a recent forum:
How does Connecticut compare to other states?
Most Connecticut residents have faced at least one health care financial burden over the last year, according to a survey from Altarum’s Healthcare Value Hub. Altarum is a nonprofit focused on health care research.
The survey defines “health care affordability burden” as being uninsured due to high costs, delaying or going without care due to the cost, or struggling to pay medical bills.
The findings also showed that 78% of respondents have some level of worry about affording health care now or in the future.
Cynthia Cox of the Kaiser Family Foundation, a nonpartisan research think tank, said Connecticut’s health care costs are among the highest in the country and are growing at a rate much higher than personal income, leading many not to know how they will pay their medical bills.
“Connecticut ranks ninth in the country for per-person health care spending,” Cox said. “In 2020, Connecticut spent an average of $12,500 per person on health care costs whereas in the U.S. the average was $10,000.”
Connecticut also has higher than average market-based premiums than most other states. The state’s average Affordable Care Act benchmark premium is ranked fifth in
the country at $627 per month compared to an average of $456 in other states.
Employer premiums here also are higher than the national average, which contributes to higher costs. Connecticut ranks 12th in the country for employer health care premiums with an average of $7,717 per year compared to the national average of $7,380.
“A few decades ago in the 1990s health care spending in Connecticut was a little more similar to other states,” Cox said. “But health care costs in Connecticut have grown a bit faster for per-person health spending since then. There’s been this growing gap since then.”
What are the drivers for increased costs in Connecticut?
As with so many aspects of American life, the COVID-19 pandemic had a dramatic impact on the nation’s health sector in 2020, driving a 9.7% growth in total national health care spending, bringing spending to $4.1 trillion, according to the 2020 National Health Expenditures Report, prepared by the Office of the Actuary at the Centers for Medicare & Medicaid Services.
“Prior to the pandemic we had solid supply chains,” said James Lacobellis, senior vice president of Government and Regulatory Affairs for the Connecticut Hospital Association. “After the pandemic hit, many vendors shut down their operations. The materials that create medical supplies like resins, cottons and metals have surged 30%. Personal protective equipment, masks, gloves and surgical gown prices also increased dramatically causing hospitals to maintain reserves of these materials and pay higher premiums.”
While inflation and limited supply chains spurred by the pandemic have made a big impact on health care costs, other factors including a shortage in nurses and medical staff have led to hospitals relying on staffing agencies to fill vacancies.
“Certain costs have been exacerbated by the pandemic,” said Paul Kidwell, senior vice president of the CHA. “Hospitals employ just about 100,000 individuals in our state. Those expenses add up to more than half of the costs and can reach 60% in some instances. We have had a tremendous amount of attrition in our workplaces and we have had to rely on staffing agencies. The costs for those services are
significantly higher than what we experienced prior. So that’s an enormous cost hospitals have had to burden.”
The health care field accounts for 16% of the state’s total workforce, and nurses and certified nursing assistants are in high demand. In late 2020, the Governor’s Workforce Council estimated the state’s registered nurse workforce was roughly 50,000, more than half of whom were over the age of 50. There were “significant shortages” in health care workers, the council reported, estimating an annual need of 3,000 new RNS and 2,500 openings for certified nursing assistants.
In addition, the state’s Office of Health Strategy found hospital inpatient and outpatient spending were primary contributors to rising health care costs for commercially insured individuals. Nationally, hospital care accounted for 31% of all personal health care spending in 2019, rising 6.2% from the year prior to nearly $1.2 trillion.
One of the drivers for this increase among both inpatient and outpatient spending is consolidation, panelists posited at a recent informational session that included representatives from hospitals, other health care providers, pharmacies, insurers, and academics and held by the Insurance Department, health care advocate and the OHS. The two large systems in the state, Yale New Haven Health and Hartford Healthcare, contend that consolidation makes for more efficient services, allowing patients statewide access to higher-level care, others maintain it increases costs.
Earlier last year, Yale New Haven’s announced its intent to acquire Manchester Memorial, Rockville General and Waterbury hospitals. When that merger is completed, Yale and Hartford health care will together own 14 of Connecticut’s 27 acute-care hospitals. Smaller systems, Nuvance Health and Trinity Health of New England, each own three additional hospitals, leaving seven operating independently.
Connecticut’s hospitals weren’t always so concentrated within a few systems. A decade ago, the majority of hospitals in the state were either independent or owned by smaller systems.
Hartford Healthcare purchased Backus Hospital in Norwich in 2012. Yale New Haven Health acquired the Hospital of Saint Raphael in 2012, Lawrence and Memorial Hospital in New London in 2016, and Bridgeport Hospital in 2019. And Hartford Healthcare added St. Vincent’s Medical Center in Bridgeport
in 2019. Yale New Haven’s recent acquisition of Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital, pending regulatory approval, mark the latest and largest move.
“Consolidation has a significant impact on cost,” said Miranda Motter, AHIP senior vice president. “Hospital concentration has been linked to average annual marketplace insurance premiums that are 5% higher than those in less concentrated areas.”
How does the United States compare to other countries?
“The U.S. spends about twice as much on health care as other countries do,” Cox said. “Back in the 1970s, health care spending was more similar to other developed countries, but spending has grown more rapidly since then.”
According to the speaker at the recent panel, the U.S. does not use more health care services than other developed countries around the world.
“The U.S. has fewer doctor’s visits per person than other similar wealthy countries do,” Cox said. “We also have shorter hospital stays than other comparable countries. We’re not seeing any evidence that people in the U.S. are getting more health care than other developed countries.”
Therefore, the difference in spending between the U.S. and its peers is not driven by using more health care, but the difference in the prices paid for accessing health care.
“We spend more on just about everything,” Cox said. “We spend about four times more on administrative costs, which includes government programs and insurance company overhead, than other countries do. That’s one large driving factor.”
But it’s not just higher administrative and overhead costs. In 2018, the U.S. spent on average $1,400 per person on prescription drug costs versus $800 per person in other similar highly developed countries, according to the Organization for Economic Cooperation and Development.
“We’re not seeing that higher health care spending is translating to better health outcomes,” Cox said. “In fact, in the United States, we live shorter lives on average than people in other comparable countries do.”
In 2020, life expectancy at birth declined to 77 years — the lowest national average since 1996. Projections for 2021 showed another drop to 76.1 years, which would be the biggest two-year downturn in U.S. life expectancy since 1921-1923, according to the CDC’S National Center for Health Statistics.
Compared to similarly large and wealthy nations, the U.S. has seen its average life expectancy dwindle over the past several decades. Life expectancy in the U.S. has increased by smaller amounts than in peer countries since 1980 — and the COVID-19 pandemic may have widened that gap, based on provisional estimates from Kaiser Family Foundation.
A first step to bringing down costs?
“Health care is a human right that too many Connecticut residents struggle to afford,” Gov. Ned Lamont said, noting the “pressing need for renewed efforts to make health care more affordable for residents and small employers.
“While our health care system consistently ranks among the best in the nation on quality and performance, a high-quality system that patients cannot afford to access is not sustainable,” he said.
Inanefforttoreininsurginghealthcarecosts, Connecticut lawmakers last year passed a bill giving the state the power to limit how much overall health care prices can grow and to hold providers and insurers accountable for rates.
“Paying for health care is a black box,” Lamont said during the last legislative session. “It’s really complicated and a lot of people really don’t know what they’re paying for. The differentiation in terms of quality and cost is all over the map, the likes of which I don’t see in any other industry.”
Connecticut now becomes just the fourth state to set so-called health care price benchmarks. The target will hold providers and insurers to a limit on how much they can increase prices, according to the OHS.
OHS will be responsible for setting the benchmark targets while holding public hearings for any providers and insurance companies that fail to meet the goals in order to apply public pressure.
As the CT Mirror reported, the legislative session begins Jan. 4, and familiar issues are expected to resurface, including costs and access, a proposed ban on flavored tobacco products, a measure that would allow physicians to prescribe a lethal dose of medication to terminally ill patients, and an expansion of Medicaid to residents regardless of immigration status, addressing the opioid epidemic and increasing the health care workforce.