» Why is Healthcare Spending High? It’s the Prices

Healthcare spending in the US outpaces every other OECD country, and it’s not particularly close. While wealthy countries such as the US spend more per person on healthcare than other countries, we spend far more per person on healthcare than similar countries.

But even though we spend much more per person, we don’t experience significantly better outcomes than other countries. We perform well on some health measures, but we struggle with high rates of obesity, diabetes, and heart disease.

So why are we spending so much more than anyone else for less than inspiring results?

As health economists put it back in 2003 (and reaffirmed it in 2019), “It’s the Prices, Stupid.”

RAND published a great piece of research a few years ago on this very topic: Private U.S. Health Plans Pay Hospitals 247 Percent of What Medicare Would Pay.

In short, private companies pay (through their health carrier or their network) much more for healthcare services than Medicare. Across the four major categories of healthcare spending, including inpatient, outpatient, physician services, and drugs, private payers spend 200 to 400 percent of Medicare. In some cases, even more than that.

So when we set out to reduce health plan spending without losing benefits or hurting employees, it’s actually fairly simple. Cut the fat, pay less, and demand better outcomes. One of the ways we like to do this is to partner employers with local health systems for a coordinated approach to treating employees with high quality, low-cost care. And that’s called Direct Contracting.

There are two key byproducts of this simple (not always easy) approach.

Reduced spending today: Pay $20,000 for a knee surgery instead of $40,000, saving the plan $20,000. Numerous examples exist in which paying a lower unit price for healthcare services results in lower plan spending.

Remember that your claims spend is a function of the number and average size of your claims. Pay less per claim to pay less overall.

Reduced stop-loss insurance: Stop-loss carriers will discount the cost of your stop-loss insurance if they see that you will pay less for healthcare services and your claims will be less expensive. Carriers price your specific and aggregate coverage based on your negotiated rates, ie what you will be paying for claims. If you will pay less per claim on average, and especially for the higher-cost services, then you can pay less for your stop-loss insurance.

At the end of the day, you can spend less and get more from your health plan if you address the root causes of that spending. One of those root causes is the price you pay per claim, and partnering with local health systems and aligned providers is one of a number of ways to pay less for healthcare.

It’s really that simple.

Click here for a complimentary consultation about how to pay lower prices for healthcare

Posted by John Hansbrough in Business Strategies, Direct Contracting, Employee Benefits, Health Insurance, Healthcare Innovation, Healthcare Spending, Research, Self-Funding