Hidden costs of health care – the findings are profound
Let’s face it. Many consumers are quite happy to let someone else pay a higher income tax or pay for their health care. It’s understandable.
In recent days, I’ve seen polls showing the majority favor higher taxes for the “rich”—why is that a surprise? The majority are not “rich”.
And in health care, the same is true. Those without health insurance are quite supportive of universal coverage. And those with employer-sponsored coverage featuring high deductibles and narrower networks of providers favor lower costs and improved service. We all look through the lens of our own circumstances, especially when it comes to health care. And what we pay out-of-pocket seems a key factor in how we view health care.
We recently released: “The hidden costs of U.S. health care: Consumer discretionary health care spending”. The findings are profound:
- Only 40% of what’s spent on health care in the average household is covered under a government or private insurance plan; the 13% paid “out-of-pocket” is increasing at an alarming rate, and is especially burdensome on lower income households and for seniors on fixed incomes.
- In 2010, total U.S. health-related expenditures were an estimated $3.2 trillion—23.9% higher than reported by the official National Health Expenditures Accounts (NHEA) run by the federal government. This translates to total per capita spending of $10,392.
- $621 billion in direct and indirect costs is spent for goods and services not captured by the NHEA data. Of this, $492 billion (79%) is the imputed value of unpaid supervisory care given to individuals by family or friends—a large and growing category of health cost impacting lower income households hardest.
- And consumers are spending more on non-traditional health services: nutritional products/functional foods/supplements, and alternative health are major household expenses—some as a substitute for more costly medications or doctor visits, and some to augment traditional services.
What strikes me about the data is this: what consumers spend on health care out of pocket is an enormous part of household economics. For those without insurance coverage, it’s significant and especially burdensome if they take care of a family member or friend. And for those with insurance, it’s perhaps more burdensome as many do not qualify for government-financed services and face higher premiums, co-pays, and deductibles. It explains why 80% of insured adults feel insecure about managing their household health costs long-term, and why many with insurance delay elective care due to out of pocket costs.
Doctors, hospitals, and health professionals have historically seen consumers as “patients”—incapable of navigating their health care decisions due to the complexities of diagnosis and treatment. There’s some truth to their assessment: most defer to their clinicians for treatment recommendations, but increasingly many seek counsel on their own.
Medical device and drug manufacturers have viewed consumers as “users” dependent on a physician or surrogate to make the purchase on their behalf. And employers and health insurance plans have historically seen consumers as “members” with limited appetite or ability to manage their care and associated costs. Policymakers are conflicted by the myriad of special interests that seek to define the role of a consumer toward their sector’s particular view of what that means.
It’s changing. Consumers are being exposed increasingly to the costs of care and are changing the way they see the world, and how they’re responding. For some, due to out-of-pocket costs, willful use of alternative treatments, willful non-adherence to treatment recommendations, and delayed care are necessary tradeoffs for other household necessities.
For most, what’s being spent out-of-pocket is changing their view of the health care industry, how it performs, and how it should be organized and regulated.
The biggest challenge facing the health system in the new normal is engaging consumers as active participants in the system—not as patients, members, subjects, or ignorant, incapable bystanders. They have skin in the game—their money—and they’ll seek value for what they spend through an increasingly sharper lens.
They’re neither patients nor patient: they are consumers.
Interested in learning more? Check out our report that examines the hidden costs of U.S. health care: www.deloitte.com/us/2012hiddencosts
P.S. Join us for a national Dbrief on December 11th at 1pm (EST) where we will look ahead to key stories that will shape the health care landscape in 2013: What’s Around the Corner for Health Care Organizations and Policymakers?
by Paul H. Keckley, PhD, Executive Director
Deloitte Center for Health Solutions