Los Angeles Times business columnist David Lazarus wrote last week about one of the biggest challenges to making medical care more accessible and affordable: rampant medical cost inflation. It will stoutly challenge the “affordable” part of the Patient Protection and Affordable Care Act (PPACA). Lazurus writes:
It’s a problem that affects all of us. As hospitals jack up prices to get more money from insurance companies, insurers in turn hike premiums for all members to cover their rising expenses. It’s a vicious cycle that exacerbates the unaffordability and inaccessibility of treatment in the United States.
It’s also a phenom that’s not responsive to competitive market forces to hold down the price of medical care and prescription drugs. A competitive market has two elements. One, many buyers and sellers. Two, competitive markets afford ample opportunity for buyers to shop around for the best deal. Most markets for medical care and medications have the first attribute but not the second. People who are sick or injured or facing conditions that threaten the quality of their lives and life itself aren’t inclined to question the cost. Especially when insurers and managed care plans are picking up most of the tab. As prices increase, payers pass through the higher costs to their insureds and plan members.
Of course, that can only go on for so long before premiums become so high they precipitate adverse selection, with healthier people dropping coverage and leaving payers covering sicker, costlier individuals. By requiring everyone to have some form of public or private health coverage, the PPACA hopes to stave off adverse selection and put more dollars in the coffers of insurers and managed care plans to cover those increasing medical and drug costs. However, without some mechanism to hold down the rising price of medical utilization — lowering demand through healthier lifestyles, for example — the PPACA’s insurance mandate may only buy a little time before we’re facing a more widespread health insurance crisis.
The Los Angeles Times today is reporting today that California’s 12.4 percent unemployment rate — the third highest in the nation — has wiped out so much employer paid health insurance through job loss that the health care sector is being adversely affected. Those who are employed are paying higher deductibles and co-pays, further depressing medical utilization, according to The Times. As a result, many newly minted health care workers are themselves unemployed, the newspaper notes.
Neeraj Sood, an associate professor at the Schaeffer Center for Health Policy and Economics at the University of Southern California, sees decreased medical utilization as ultimately a positive development for the overall economy by making it less dependent on the healthcare sector for growth, according to the Times story.
I would agree with Sood, provided lower use of medical services is driven by people taking better care of themselves. However, in the context of the Times story, that’s clearly not the case. It’s people’s inability or reluctance to pay for medical services — even doctor visits — not necessarily less need for them.
This story might also herald a time where medical utilization and costs are being reconciled with buyers’ ability to pay for them. Medical costs cannot keep rising at a rapid pace. Eventually they will hit a price point of resistance and they may be fast approaching that point. We may be on the verge of a fundamental shift in the health coverage back to the old “major medical” model that covered only hospitalizations, surgeries and other high cost services and not the routine and minor care people have come to expect in recent years.
This article makes a point also made on this blog: that increasing access to health care fails to address the root cause of increased health care utilization and particularly lifestyles that lead to preventable chronic conditions that are a major driver of that utilization.
Employers are becoming increasingly sensitive to the rising cost of health care, driving interest in prevention and wellness programs designed to reinforce healthy behaviors such as exercise. Some are paying workers rewards to take good care of themselves and even strapping pedometers on them.
But will these measures have a meaningful, long-term impact on getting rising health care costs under control? I’m doubtful because I view this not so much as a workplace issue but more of a work-life time management issue, particularly for office/information workers. If they are commuting to an office five days a week there’s often not much time or energy in the workday for a significant and beneficial amount of exercise and the seven to eight hours of sleep many medical experts say people aren’t getting but should. Sitting in a commute and then sitting in a cubicle for eight or more hours does not a healthy lifestyle make. Just look at the many supersized workers who inhabit this work environment.
One employee wellness intervention that employers of this large category of workers should consider implementing to get measurable results is allowing them to work from their homes or from locales close to their homes for some or most of the workweek. The freed up commute time can then be used for an hour of exercise based on the average U.S. commute time. There’s also the added plus of more sleep time since teleworkers can start work soon after rising without having to prepare for a trip to the office.
Rising medical costs — a key driver of the health insurance crisis — appear to be easing, the Wall Street Journal reported this week. According to the newspaper, there are two factors at work. The first is the recession. Since a large majority of people get health coverage through employment, their coverage gets more costly once they lose their jobs since they must buy costly COBRA coverage (many long term unemployed have lost that coverage) or pricey individual health insurance or HMO memberships.
In the case of the latter, more are opting for more affordable high deductible plans, which serve as a built in deterrent to the utilization of medical services. “People just aren’t using health care like they have,” Wayne DeVeydt, WellPoint’s chief financial officer, told the newspaper. “Utilization is lower than we expected, and it’s unusual.”
If the U.S. economy enters a post recession deflationary period as some economists expect and some Federal Reserve bankers worry aloud, premiums might even fall. That along with decreased utilization might head off potential market failure in the individual and small markets, troubled market segments that might not otherwise survive in their current form by the time most provisions of the Patient Protection and Affordable Care Act take effect in 2014 if sharp increases in medical costs and premium rates continue.