Balancing money and heart
Employee Benefits

Did America Get Healthy: The Decrease in Healthcare Spending

Den Bishop
Den Bishop
Senior Advisor

As an insurance nerd, I await the release of the Milliman Medical Index (MMI) like a kindergartener waits for Christmas morning. This year’s MMI revealed that healthcare spending in the U.S. decreased on an annual basis for the first time in the report’s history.

Does this mean America has gotten healthy, that the healthcare system is more focused on patient affordability than profit, and that we can put the stress and pressure of healthcare and health insurance inflation behind us? If you believe that, please stop reading and go check yourself in for detox and rehab!

All kidding aside, total cost for anything, including healthcare, can be summarized in the formula…Price x Use = Cost. For healthcare costs to stay down, either prices need to go down, the amount of care delivered needs to go down, or both.

Let’s look at what COVID-19 has done to healthcare spending and what I believe will happen next.

The Price of Healthcare

One of my coworkers called his long-time physician’s office a couple of weeks ago to schedule an overdue physical exam. It was late June, and they told him they could squeeze him in this December. The physician offices that were empty for almost a year are once again packed.

Supply and demand economics would say that when the demand for services outpaces the availability, prices rise.

In addition to simple supply and demand cost pressure, the financial squeeze COVID-19 put on private physician’s practices caused a wave of transactions where physicians sold their business to corporations, private equity groups, or large hospital systems. These larger organizations have been able to negotiate higher reimbursements from networks. The end result of the consolidation is higher prices for patients and plans. Approximately 7 of every 10 physicians are now employed by some non-physician-owned entity.

Healthcare Use

The travel industry is booming because of the pent-up demand for people to get away for a vacation.

Cancer screenings, musculoskeletal surgeries, and many other procedures that would have normally occurred over the past year and a half have been delayed. There is a wave of undiagnosed disease waiting to be treated.

Additionally, healthcare businesses will be looking to make up for lost revenue through the volume of tests and procedures to come. All of this without considering the health impact of the COVID-19 isolation.

What Can Employers Do?

So, care has been delayed and big business now controls an even bigger share of the health care economy — what does this mean for employers, and what should you be doing about it?

It means healthcare inflation rates will spike and access to many physicians and specialties will be strained.

My advice — pursue quality! Care interventions like second opinions and pre-certifications will have little impact in taming unnecessary tests and procedures. Connecting patients to the highest quality physicians who have a demonstrated history of accurate diagnosis, effective referral patterns, and appropriate testing and prescribing should be the single greatest priority in protecting patients and your plan from runway healthcare inflation in 2022 and beyond.

Third-party interventions during the course of treatment, like second opinion and pre-certification programs, will have limited power to push back against the wave of demand.

Although the current healthcare inflation is at a record low, the rush to healthcare quality has never been more needed for the inflation that is coming.

If you have questions on this or need more advice on what to be doing, please don’t hesitate to reach out. We’re happy to help!

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