As benefits and healthcare consultants, we salivate over statistics and data about health care costs.

We collect and pull apart figures around spending and claims but our clients don’t always want to know all the details.

As they say, I don’t want to know how the sausage gets made!

Our clients just want us to help reverse the trend of rising health plan and health insurance costs and deliver either flat or reduced costs.

In doing so, we have to understand the drivers of health care costs across the five components of Health Care Costs. Then, we’ll dive in to how these costs are expected to change for employers and health plans in 2022.

The Five Components of Health Care Costs

These are the five components to overall health care costs. Those are Doctor’s Services, Inpatient Facility Care, Outpatient Facility Care, Pharmacy Costs, and Other Services.

We’re including some numbers from the 2021 Milliman Medical Index for context around the cost of these areas of spending.

Knowing the total annual health care cost for the average person is $6,516, let’s see how this breaks down by each component.

Inpatient Facility Care- 19% or $1,244 per person

Outpatient Facility Care- 29% or $1,887 per person

Hospital services, both inpatient and outpatient, are about half of all healthcare expenses.

Through 2020 and into 2021, inpatient spending fell due to members deferring elective procedures. But this is expected to jump as members make up past services and new procedures are booked more promptly than last year.

While inpatient covers procedures and services that require hospitalization, members may have an outpatient procedure and return home later that same day with no overnight stay.

Professional Services- 28% or $1,804 per person

This component covers the cost of fees paid to physicians and other health care professionals, whether a patient visits a hospital, clinic, surgical center, stand-alone lab or imaging center, or a doctor’s office.

Pharmacy Spend- 22% or $1,447 per person

Pharmacy costs per person are fairly straightforward. Interestingly, pharmacy costs grew from 2019 to 2020 and into 2021. Members are increasingly comfortable and familiar with mail-order drugs and delivery, so we didn’t see utilization fall here like we did elsewhere through 2020 and into 2021.

Other services- 2% or $134 per person

This area covers services such as home health care, ambulance costs, medical equipment, prosthetics and more.

Overall cost growth among the 5 components of health care costs

Once accounting for the irregularities (quite an understatement!) of 2020 and the first half of 2021, the authors predict that total health care costs will increase by 14.2 percent from 2020 and 8.2 percent from 2019 numbers.

Employee spending is predicted to increase 2.8 percent across employee contributions and out-of-pocket expenses.

Employer spending is predicted to increase 11.6 percent(!). Keep in mind that the decreases seen in employer spending was mostly limited to self-funded employers only. Most fully-insured groups saw a rebate but this varied by group.

While rebates and rate passes were delivered for 2020 renewals, we expect employers to entertain much more discussion about plan changes this year around renewal time as they seek to maintain quality benefits but at fair costs.

While price increases are coming, we find as consultants many opportunities to manage the costs underlying those prices. And somewhat counterintuitive, this comes down to actually improving and enhancing a benefits plan.

How can I somehow both improve my benefits and spend less? Speak to a consultant today!

 

References:

Houchens, Liner, Man, Naugle, Norris, and Weltz. “2021 Milliman Medical Index.” Published May 27 2021. https://www.milliman.com/en/insight/2021-Milliman-Medical-Index

 

Posted by John Hansbrough in Business Strategies, Healthcare Innovation, Healthcare Spending, Prescription Drugs, Self-Funding