It’s the time of the year again when calendars are filled with social events as friends and families gather at dinner tables and attend holiday parties. It’s also a time of year when cost and spending are top-of-mind for many families – the cost to prepare the Thanksgiving meal, the cost to travel to see family and friends, the cost to prepare for other holiday activities, and gift giving. Amid this holiday spending, many expenditures sneak up that were not part of the planned budget: additional meals at the airport, paying for overnight shipping so a gift arrives in time, and that last minute gift for the cousin you always forget to include on your list. At the end of the holiday season, you’ve exceeded your initial budget due to these “hidden costs” not originally planned for.
This unexpected spending reminds me of a similar issue faced by health care consumers. The issue of cost and out-of-pocket (OOP) liability in health care is a significant one, even for people who have insurance through Medicare or their employer. This shouldn’t be surprising; Deloitte’s 2013 Survey of US Employers found that employers who experienced increased health care costs in the last three years estimate they passed on around 26 percent of the total increase to employees through cost-sharing mechanisms.1 Some individuals who are obtaining insurance coverage through the health insurance marketplaces are seeing higher deductibles than those in employer-sponsored plans.2 At a meeting I recently attended, one of the participants pointed out that because many of the marketplace plans have large deductibles, some employers are using this as “cover” to add or increase deductibles in their own benefits packages.
The Deloitte Center for Health Solutions recently took a deep dive into the topic of OOP spending in our report, “Dig deep: Impacts and implications of rising out-of-pocket health care costs.” This analysis found that OOP spending for traditional medical services (i.e., those captured in the National Health Expenditure Accounts) is only the beginning. Consumers also encounter high cost-sharing for services like nutritional supplements and complementary and alternative medicine—services that are generally covered less frequently by insurance. Even during the recession, when overall health care spending slowed, spending for these types of services continued to rise.
This analysis of “hidden costs” also calculated how much time people spend caring for loved ones (often older adults and children) that need help with activities of daily living; this can also add significantly to consumers’ spending on health care or add to debt.
When you add these hidden costs together, the number is substantial: as much as $672 billion (19 percent of total health care spending) is estimated to be hidden from the National Health Expenditure Accounts.
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This is clearly affecting consumers in a real way. Deloitte’s 2013 Survey of US Health Care Consumers found that nearly half (48 percent) of all consumers experienced an increase in their OOP spending for health care. And nearly 40 percent of respondents had financial difficulty paying for their health care expenses in the previous 12 months. Only one in five consumers felt that they are financially prepared for the future health care costs they might face.3
Will health care return to days of broader benefits? On the one hand, I think that if value-based care can fulfill the promise of bending the cost curve and if incentives like value-based benefit design that reduce cost sharing to increase adherence and improve outcomes work, payers might be a bit more open to considering it. On the other hand, shifting more of the cost sharing to employees can be effective at lowering employers’ health care spending.
Consumers’ increasing exposure to cost sharing is also having profound effects on the health care industry.
Hospitals are now investing in ways to inform patients with scheduled procedures of both the expected costs of and ways to pay for the most expensive types of hospital services. In the past, patients with insurance coverage could expect their policies to cover most of their costs and the amount of cost sharing that the patient would be billed after the fact was relatively small. Now, with increasingly large deductibles, the amount of revenue at stake is large enough for hospitals to invest in technology and human capital that help patients pay for their share of their bills.
Life sciences companies are feeling the pinch as well. Both deductibles and cost sharing – which can be especially high for specialty drugs – can make consumers unable or unwilling to use these therapies. Currently, many drug companies offer help in paying for drugs through coupons and other programs. Looking around the corner, life sciences companies could begin offering drugs in packages with other services (e.g., disease management) to get to better outcomes. If life sciences companies are able to show high value through these packages, it may increase the likelihood of more comprehensive coverage by payers.
Health plans are offering high deductible benefit designs in response to demands from employers to lower costs and in public marketplaces due to cost-sharing structure requirements. Many of the major health plans offer directories and tools to help enrollees navigate network rules and benefit design to find good value, but these tools are in relatively early stages. Network directories can be hard to keep up to date when physicians can decide on a weekly basis whether they want to take more of a particular plan’s patients. Figuring out what prices apply for a particular plan and benefit design can also be challenging, especially when the particular set of services a patient will end up getting is not always entirely predictable.
Every few weeks I hear about new companies that are rising to the challenge of creating products and programs that hold some promise of supporting consumers who are savvy and active purchasers of health care. These stories make me optimistic that technology, data transparency and usability of search tools will improve so that people can make the best choices about how to spend their own money and get the best care for the money they spend. Wider use of decision aids could go beyond finding the best price for a given service. I hope that these tools will not only help people find the best price for a given treatment but will also help them better understand the potential risks and benefits and the full array of treatment options available to them.