Ever-Rising Health Costs Worsen California’s Coronavirus Threat

Ever-Rising Health Costs Worsen California’s Coronavirus Threat

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As California and the nation prepare for the spread of the new coronavirus disease known as COVID-19, it is important to be reminded of another significant threat to the health of our people: the high costs of health care.

It is striking that one of the first steps policymakers must consider in the wake of an outbreak is waiving consumer cost sharing such as copays and co-insurance for coronavirus testing and treatment. Why? We’ve known for decades that the use of patient cost sharing is a blunt instrument that leads people to skimp on necessary services. In an era when the average deductible facing a working family in California now exceeds $2,700, it’s not hard to imagine how many people missed detection and treatment opportunities because they could not afford to pay for them.

The discussion around COVID-19 cost sharing is a reminder that coronavirus testing and treatment is not the only thing Californians forgo because of cost. The latest CHCF health policy poll found that in the last year, more than half of California families delayed or skipped care due to cost, including avoiding recommended medical tests or treatments, cutting medication doses in half, or postponing physical or mental health care. These practices are spreading, and they are making us sicker. Forty-three percent of those who postponed care said it made their conditions worse.

A close look at the survey data (PDF) shows that many Californians experience these problems, regardless of their health insurance status, income, or residence in high- or low-cost regions. And worries over health care costs are even more widely shared. More than two-thirds of state residents are worried about medical bills and out-of-pocket costs, including almost 60% of those with employer-sponsored insurance. These concerns reflect two unfortunate realities: We are all vulnerable to disease, and no one is immune from ruinous medical bills because of it.

A key reason for the growth in cost-related problems and worries for California families is the rise in underlying expenses within our health care system. Economists point to several factors that drive systemwide expenses, including new medical technologies and Californians’ health status. But none of these factors explains away the overall rise and dramatic variation in prices for the same procedures in different parts of the state, even after controlling for the complexity of the procedure and underlying costs like physician wages.

CHCF surveys of employer-sponsored insurance over the last decade show how much of this rise is being shifted to working California families in the form of higher insurance premiums and deductibles. The chart below shows the cumulative increase of inflation and wages along with premiums and deductibles for the average California family covered by a preferred provider organization (PPO) in a workplace health plan. While wage growth has barely kept pace with inflation, family premiums increased at more than twice that rate. It is especially striking that deductibles increased almost four times as much as wages.

California will not be an affordable place to live and raise a family unless it confronts the problem of unjustified, underlying health care costs. Expanding health insurance coverage, increasing subsidies, and limiting out-of-pocket expenses solve immediate problems, but sustained progress demands that we reduce systemwide expenditures for services that are not making Californians any healthier. Evidence suggests the opportunity for savings is significant.

In his state budget (PDF) released in January, California Governor Gavin Newsom proposed establishing an Office of Health Care Affordability to address underlying health care cost trends and to develop strategies and cost targets for different sectors of the health care industry. Other states have established offices or cost commissions of this type. A recent CHCF publication examined how four states have structured and empowered their commissions to successfully do this work.

As we confront the public health threat of COVID-19, we must remember that widespread cost-related access problems and worries already afflict most families in the state. In ways that few people anticipated before this year, this cost issue isn’t just a problem for strapped families — it’s a threat to the well-being of every last one of us.





Learning to live on Medicare margins


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“If Democrats take back the Senate and win the White House, there’s a good chance they’ll implement some version of a public option or Medicare buy-in, and that would be devastating for the fragile economics of our health system.” That was the message delivered by the CEO of a system we were visiting recently, in her report to the board of directors.

That kind of alarmist message might seem career-limiting, but given the way the politics of healthcare are playing out at both the national and state levels (see Colorado and Washington State), it’s past time for executives to get beyond the rhetoric and begin to prepare for the real financial consequences of public option proposals.

That’s what this CEO had done—what followed the dire warning was a detailed analysis (which we helped assemble) of what would happen in various scenarios—what if one percent of our revenue shifted from commercial rates (around 250 percent of Medicare) to possible public option rates (somewhere between 140 and 180 percent of Medicare)? That’s a knowable number, and you can begin to make assumptions about how much business would shift under different scenarios, and how quickly.

The reality for health systems is that most of the margin comes from the 55-to-65-year-old population—who use more healthcare services but whose care is reimbursed at commercial rates. That cohort cross-subsidizes much of the rest of a typical hospital’s business.

The presentation to the board laid those economic realities out in concise detail—and provided a bracing wake-up call that the system needs to be prepared to live on a different level of margin than they enjoyed in the past.

That means radical cost controls, sharp reductions in “system bloat”, and a laser-like focus on shifting care to lower-cost settings. For years, hospital leaders have tossed around the notion that “we have to learn to live on Medicare margins”.

Given the rising popularity of public option policies (67 percent of Americans support the idea according to a recent poll, as do 42 percent of Republicans), that lesson may need to be learned sooner rather than later.




Private insurance is health care’s pot of gold


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Private health insurance is a conduit for exploding health care spending, and there’s no end in sight.

The big picture: Most politicians defend this status quo, even though prices are soaring. And as the industry’s top executives and lobbyists gathered this week in San Francisco, some nodded to concerns over affordability — but then went on to tell investors how they plan to keep the money flowing.


Where it stands: More than 160 million Americans get private insurance through an employer or on their own, and per-person spending in that market rose by almost 7% in 2018, the highest annual growth rate in 14 years.

  • “Prices are definitely going up,” Owen Tripp, CEO of health tech startup Grand Rounds, told me this week during the annual J.P. Morgan Healthcare Conference.
  • His company’s vast amount of commercial health data shows big increases in what companies are spending on hospitals, doctors, specialty drugs, devices and out-of-network services.


What they’re saying: Many in the industry admit price inflation has been hammering the commercial markets for years.

  • “Cost per unit is the primary driver,” Cigna CEO David Cordani said. He did not mention the exploding costs of administering health insurance.
  • One hospital system at the conference acknowledged that “the number one cause of personal bankruptcy is our industry” — before going on to tell investors about the hospital’s strong margins.


Multiple hospital executives claimed they charge commercial plans higher prices to make up for the lower rates they get from Medicare and Medicaid.

  • “Every health system I know of loses money on every Medicaid and every Medicare patient,” Amy Compton-Phillips, a top clinical executive at Providence St. Joseph Health, told me.
  • But the evidence overwhelmingly shows that hospitals’ explanation doesn’t hold water.


Drug spending has risen at a slower rate than hospital and physician spending.

  • But in the commercial market, drug companies also have tripled their spending on programs that cover all or part of patients’ out-of-pocket costs, then bill insurers for the full freight.
  • “It’s an intriguing theory,” said Stephen Ubl, CEO of PhRMA, the pharmaceutical industry’s main lobbying group. “But I would be shocked if we were a significant contributor” to the increased private spending.


The bottom line: The private market is the main pot of money that everyone is chasing at the J.P. Morgan conference, and most in the industry don’t see the ballooning spending within that market as a problem.





The biggest health care issues of the 2020 election

The biggest health care issues of the 2020 election

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Polls show that health care is one of the top issues American voters care about, but ideas about controlling costs and expanding coverage are divided along partisan lines.

This episode features a deep dive into health care policy and what Democratic presidential candidates and Republican Party leaders are offering as their solutions. Guests are two of Brookings’s top health policy experts: Christen Linke Young is a fellow in the USC-Brookings Schaeffer Initiative for Health policy and, among her many roles in public service, served in the White House as a senior policy advisor for health.

Matthew Fiedler is also a fellow with the Schaeffer Initiative and was previously chief economist of the Council of Economic Advisers in the White House, where he oversaw the council’s work on health care policy. Both Young and Fiedler have contributed a few explainer pieces on health policy as part of the Policy 2020 project here at Brookings.

Also, meet Annelies Goger, a new David M. Rubenstein Fellow in the Metropolitan Policy program at Brookings.





When a chart speaks a thousand words…

When a chart speaks a thousand words…

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I happened to stumble across the above chart online the other day. It’s not new data, and was actually quoted in this major publication. I can write articles and parse the challenges we face till the cows come home, but nothing can really sum up what’s wrong with American healthcare more than this chart. It says everything and is quite obnoxious. What’s worse, it’s from 2009—and the curve has probably considerably diverged since then.

So that’s it, my blog post for the week. Just stare at this chart and take it all in. Feel free to comment below. I was going to write a long article on what these curves mean for healthcare. Then I thought to myself: absolutely nothing I write can possibly say more than the chart itself. It speaks not just a thousand words, but a million…..



In a Boston acute care matchup, home beats the hospital


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Despite all of the recent hype, the idea of “hospital-at-home” is hardly a new concept. The first randomized, controlled study on the topic, published over 20 years ago, showed that the model was safe, finding that patients with five common conditions who would normally have been admitted to the hospital experienced similar outcomes when treated at home.

This week a new randomized, controlled trial from researchers at Boston-based Brigham and Women’s showed that hospital-at-home had better clinical outcomes and was a whopping 38 percent cheaper than equivalent management in an acute care hospital. Yes, the study was small (91 patients) and probably had some selection bias (just 37 percent of eligible patients chose home care).

Drilling into the data, length of stay for home-based patients was a little longer, but at-home patients received dramatically fewer lab tests, imaging studies and specialist consults—raising the question of whether all those daily chest x-rays, CBCs and curbside consults in traditional hospitals really provide value.

And 30-day readmissions and ED visit rates for home-based patients were less than half of the control group. Selection for clinical appropriateness and family support is critical, but experts estimate that up to a third of medical admissions could be managed in the home setting.

As growing evidence shows hospital-at-home to be safe, effective and lower cost, the lack of a reimbursement model to support investments in home-based acute care is now the greatest obstacle to widespread adoption.