Health care costs

by Jim Toole, managing director, life & health, FTI Consulting

According to the Office of the Actuary, U.S. health spending grew more slowly in 2009 and 2010 than at any time since Medicare was signed into law.  Driven by the recession, Americans delayed hospital care, avoided emergency room visits, and changed the way they purchased prescription drugs, reducing the growth in health spending close to the rate of the economy overall.

Despite this, health insurance premiums grew faster than insurance spending, and the overall margins that insurers enjoyed increased.  Some insurers were charging higher rates to address the uncertainty posed by the PPACA, but in general the costs associated with the changes in law have yet to materialize.

Health benefit plan costs rose at rates higher than the rate of spending, squeezing margins and reducing the competitiveness of U.S. businesses internationally.  Businesses responded by pushing more costs to employees, reducing overall benefits and switching to higher deductible plans with lower premiums. 

Although overall healthcare spending in 2010 rose only 3.9%, federal health spending has ballooned a shocking 40% in three years from 2007 to 2010, driven primarily by an increase in Medicaid spending.   Despite the growth in medical spending overall, the number of uninsured Americans topped 52 million in 2011, a full 40% higher than 10 years earlier.

Risk Management
The most important thing to understand about the healthcare environment is that change is constant, driven by the regulatory environment and the drumbeat of technology.  The U.S. health system as we know it is only about 60 years old, and the first great change came with the introduction of Medicare.  Since 1965 there has been a call and response between regulators and the private sector and I do not see that ending with PPACA.

Woven throughout this toccata and fugue is the force of technology which has created ever more expensive treatments and entire industries ranging from radiology to medical devices to big pharma.  Since 1950 the percentage of the U.S. economy devoted healthcare has grown significantly and nobody can see exactly how or when this is going to end.

The basic questions we still struggle with today were clearly delineated by Victor Fuchs in 1974 in his classic book Who Shall Live? Health, Economics and Social Choice.  We know the variables: Cost, Quality, Access and Efficiency.  But as a society we haven’t been able to reach consensus on the principles needed to solve this equation, so instead we lurch from bed to band-aid to panacea to the detriment of all stakeholders in the system.

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Discussion

One response to "Health care costs"

  • Fathi says:

    Students just need to remember that any shotrfall in pensions has to be covered by the UC, which means our tuition. So we want a low discount rate to insure that workers contribute enough to cover their pension needs. It is crazy to think the economy will turn around and start providing stellar investment returns.

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