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Healthcare Spending – Few Incur the Most in Claims

A country’s distribution of wealth can be eerily similar to its distribution of healthcare spending. For example, a larger portion of wealth of any society is owned by a small percentage of the people in that society. Likewise, the preponderance of healthcare spending comes from a small percentage of people with multiple chronic conditions.

Vilfredo Pareto, an Italian civil engineer, economist and sociologist, termed the distribution of wealth, now known as the Pareto principle, as the “80/20 rule” – of which 20 percent of the population controls 80 percent of the wealth (some caveats apply, but you get the gist of this concept).

Let’s take a look at healthcare spending in our country. Most recently, the National Institute for Health Care Management (NIHCM) released a series of charts that provides a great deal of insight on how a few Americans can greatly impact overall healthcare spending. This insight, of course, is nothing new, yet the slides have been updated, using data from the 2014 Medical Expenditure Panel Survey.

The chart below provides a bird’s eye view of American’s spending distribution in 2014. In that year, the top 10 percent of healthcare spenders accounted for two-thirds of all spending. In healthcare, Pareto’s 80/20 rule might need to be adjusted to the “90/10 rule.” Digging deeper, the top five percent of spenders comprised half of all spending, while only one percent of spenders made up more than one-fifth of all spending.

In a country that spent roughly $3 trillion on healthcare in 2014, about $2 trillion was spent by 10 percent of all spenders and $600 billion was spent by just one percent of healthcare spenders. On the backside, the bottom 50 percent of spenders account for only three percent of spending – quite amazing, right?

In the chart below, the bottom 90 percent of the “Civilian Non-Institutionalized Population” paid $1,500 or less in out-of-pocket costs in 2014, while the top one percent of the distribution had out-of-pocket costs in excess of $6,100, and their mean spending burden was estimated to be nearly $11,000.

Over the past decade (2006-2015), spending for personal healthcare services increased by more than $2,400 per person – roughly a 40 percent increase. Higher spending was observed in all six sectors during this time, with hospital care leading the way:

  • Hospital Care48 percent
  • Home Health & Other LTC Facilities and Services41 percent
  • Physician and Clinical Services35 percent
  • Retail Prescription Drugs34 percent
  • Dental and Other Professional Services30 percent
  • Retail Durable Medical Equipment & Other Medical Products28 percent

Yes, prescription drug costs continue to attract a great deal of media air time concerning price inflation., But it’s hospitals, physician and clinical services and home health that grew more than retail prescriptions over this same time period.

The following chart illustrates the steady increase in per-capita spending for most types of services – such as hospital care, home health and other long-term care, and physician and clinical services. However, retail prescription drugs increased most rapidly from 2013 to 2015, warranting public scrutiny.

Aggregate national spending on personal healthcare services has risen by over 50 percent over the period 2006-2015. Public and private payers are spending more in total, in addition to patients personally paying more (out-of-pocket).

Despite more Americans having high-deductible health plans, other payers (e.g. Medicaid, Medicare and Private Insurance) continue to pay a higher share of the cost.

As health costs continue to increase, the share of total health spending by patient or family has actually decreased (see below).

What do these charts suggest? Healthcare continues to be highly concentrated (few spenders incur the most in claims), costs for all major types of care continue to increase more than we would like, and the spending of the public and private plans continue to outpace the out-of-pocket costs that individuals are required to pay. Finally, personal healthcare spending accounts for a greater portion of the median personal income (see below).

Despite the implications of the above data, recent House and Senate activity in Washington fails to address the source of the cost issue. Much of the ‘healthcare’ debate is about the individual insurance markets, including how to fund Medicaid. What we need is to have an honest, public debate about the relative costs and worth of healthcare – also known as ‘value.’ Currently, we reward volume, not value, in how we pay for the care we receive. The incentives and disincentives we use to ‘reward’ the players in healthcare determine both intentional and unintentional consequences. Because of this, our healthcare ‘system’ is merely performing as haphazardly designed. Let’s solve the individual market and move on.

Perhaps as we move forward, progress will be possible when politicians set aside ideology and focus on pragmatic solutions that put consumers first. That should be our collective hope.

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John McCain & Rob Lind – Healthcare Realities

Rob Lind on Lake Francis, June 2017

Last week, while on vacation in Reykjavik, Iceland, I woke to the news that Arizona Senator John McCain was diagnosed with Glioblastoma, an aggressive type of malignant brain tumor that starts in the glial cells of the brain and spreads rapidly. Glioblastoma is not as prevalent as other, more common cancers. In 2017, this type of cancer is projected to have 12,390 cases in our country. Breast cancer, as an example, is estimated to have 252,700 cases in 2017 – over 20 times the glioblastoma rate.

Cancer impacts people regardless of race, age, gender, social standing, geography, and yes, even political party. Cancer is non-discriminating, an equal opportunity disease – many times due to chance. Of course, there are exceptions, such as cancers that are known as ‘cancer clusters,’ which, according to the CDC, are “a greater-than expected number of cancer cases that occurs within a group of people in a geographic area over a period of time.” Cancer clusters can occur in dangerous environmental areas that can harm the population living nearby, such as toxic waste landfills.

The Brain Tumor Foundation estimates that treating glioblastoma may cost more than $450,000 (up to $700,000 in a lifetime of treatment). I’m not trying to make Sen. McCain’s misfortune into political fodder, but as Congress attempts to sort out what health insurance should look like for Americans who don’t have access to employer-provided coverage and are not yet eligible for Medicare, medical misfortunes continue to plague those who are employed, unemployed, insured or uninsured. Financial catastrophe is one diagnosis away for many Americans.

John McCain

The McCain news unfortunately serves as yet another poignant reminder that illness can occur at any time in our lives. Ironically, Senator McCain and his Senate colleagues are embroiled in crafting a ‘repeal and replace’ fix for Obamacare, with potentially more than 22 million Americans losing health insurance coverage, depending on which plans are being ‘scored’ by the Congressional Budget Office. It’s common knowledge that both House and Senate Congressional members can purchase private health insurance through the Federal Employees Health Benefits Program, which offers about 300 different private healthcare plans – all considered good health insurance by any standard used.

Our country continues to struggle with the “downstream” question of who should pay for healthcare and how much should be paid. This never-ending, divisive and destructive dialogue is made under the pretense that we are unable (or unwilling) to address the true cost drivers of healthcare (found “upstream“) and, consequently, seek our answers through political discourse that will get us nowhere downstream. Meanwhile, the ‘John McCains’ in our country, including those uninsured, must fight this battle on two fronts: 1) Physical and emotional distress that comes with a serious illness, and 2) Facing impending financial disaster.

Rob Lind

Two months ago, I learned that my oldest brother, Rob, has glioblastoma. This news is painfully fresh for me and I’m still sorting out why this has happened to Rob. Most likely, we will never know the answers to the persistent questions we face when family members and friends receive such a devastating diagnosis. The McCain news served as a harsh reminder that you can be a U.S. Senator, or as Rob, a rural Iowa business owner. Both have lived their lives honorably, positively impacting others around them. But each of us must be armed with the knowledge that our health may be compromised at any time by an unwelcomed intruder. Thankfully, both John and Rob have good health coverage. They are the fortunate Americans.

The healthcare coverage problem continues to persist in our country without any prospect of immediate resolution. Meanwhile, any one of us may eventually receive life-changing news that someone important in our lives, (perhaps even yourself), will be visited by an unwelcomed intruder.

Healthcare is the maintenance and improvement of our physical and mental health. The absurdly high cost of healthcare makes it immensely more difficult for those who must endure the physical and emotional hardships when facing the care they need.  When our health is compromised, we worry about the cost and how it will impact those around us – another added layer of stress. In the U.S., more so than other countries, Americans worry about the family being financially burdened.

For Rob, I cherish the remaining time that we have together. Whether we discuss things that matter most in our lives, or climb into a fishing boat and experience the beauty of a Minnesota morning on Lake Francis.

Catching fish is optional.

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Single-Payer Debate: Gaining Traction?

What do the terms ‘Single-Payer’ and ‘potato’ have in common?

The English language can be confusing at times. For example, the words, ‘either’ and ‘neither’ can be pronounced two different ways. What about ‘tomato’ and ‘potato?’ Yep, even song lyrics from ‘Let’s Call the Whole Thing Off’ described the pronunciation conundrum of potato, potahto, tomato and tomahto.

But there’s another problem with words. We sometimes use different words or phrases interchangeably. This is certainly the case in healthcare. Many times, politicians and the media will use ‘health,’ ‘healthcare,’ and ‘health insurance’ as if they mean the same thing. Although they’re inter-related, they have different meanings.

Another healthcare issue that appears to be gaining some traction is the ‘Single-Payer’ debate. But what does ‘Single-Payer’ actually mean? Is it synonymous with ‘Universal Healthcare’ or ‘Medicare for All?’ These terms are thrown around quite loosely as we debate our country’s future on how to deliver and pay for the healthcare we consume. Do all three represent a ‘government takeover’ of our healthcare delivery and payment system?

Here is a primer of the three aforementioned terms:

Single-Payer

This plan creates a single source of payment to healthcare providers, typically through a state or federal program. Financed by taxes, a single-payer approach would cover basic healthcare costs for all residents regardless of income, occupation, or health status. It is important to note that single-payer systems may contract for healthcare services from private organizations (similar to Canada) or may own and employ healthcare resources and personnel (as found in the United Kingdom). ‘Single-Payer’ describes the mechanism by which healthcare is paid for by a single public authority, but not the type of delivery for whom physicians and providers work. The U.S., by contrast, uses a multi-payer approach that includes a mixed public-private system.

Universal Healthcare

This plan is often used interchangeably with ‘Universal Health’ and ‘Universal Care.’ This is a broad term for a program that makes some level of basic coverage available to everyone (most likely through a government program), but can also allow for private insurance. Universal Healthcare will typically refer to a healthcare system that provides healthcare and coverage (health insurance) to all citizens of a particular country. Such coverage provides a specific package of benefits to all members of a society with the goal of providing financial risk protection, improved access to health services and improved health outcomes. Contrary to detractors of Universal Healthcare, it is not one-size-fits-all and does not imply total coverage. In short, Universal Healthcare can be determined by three dimensions:

  1. Who is covered
  2. What services are covered
  3. How much of the cost is covered.

Usually some costs are borne by the patient at the time of consumption, but the bulk of costs come from a combination of compulsory insurance and tax revenues. In some cases, government involvement includes directly managing the healthcare system. However, many countries with Universal Healthcare use mixed public-private approaches to deliver this care.

Medicare for All

This is a universal system in which the basic coverage would be provided by an expansion of the federal Medicare program, but would still allow citizens to purchase private insurance (supplemental plans). It is a single-public or quasi-public agency that organizes healthcare financing, but the delivery of care remains largely in private hands. As we know, Medicare is a federal health insurance program (administered by privately-contracted organizations) for people who are age 65 or older and certain younger people with disabilities, including those with End-Stage Renal Disease. According to the Kaiser Family Foundation and other sources, the administrative costs under Medicare are lower compared to private plans. Bernie Sanders famously argued that correcting the inefficiencies within our current system would actually pay to expand coverage for all Americans. In lieu of designing a whole new healthcare system in the U.S., Medicare-for-All proponents suggest that disruption would be minimal to stakeholders and citizens by merely embracing a program that we already use for a segment of our population.

The nuances of all three approaches can vary immensely, even within each of the above healthcare categories. No two countries with single-payer systems are alike. As we all know, the devil will be in the details on who pays for the program, how will payments be determined (taxes vs. premiums), who will administer the health plan(s), and how will health providers be allowed to practice – either privately or government-employed.

As Senate Republicans attempt to cobble together 50 votes to “repeal and replace” Obamacare, a handful of legislators in Democratic states have proposed some variation of single-payer bills – California, Massachusetts, New York, New Jersey and Rhode Island. The likelihood of these states passing such measures are quite remote at this time, primarily due to divided political ideologies and funding estimates that wreak havoc on fragile state budgets. Not to be outdone, 112 of the 193 U.S. House Democrats are positioning themselves for the 2020 national elections by supporting a broader version of public health coverage – endorsing the “Expanded and Improved Medicare for All Act.

Given the inability of Congress to come to a consensus on replacing Obamacare, will a single-payer or some hybrid-approach ultimately emerge as an alternative? A January study published by the Pew Research Center indicated that a sizeable majority – about three in five Americans – said the government had a responsibility to ensure everyone had healthcare (compared to 38 percent who said it is not the government’s responsibility). A few influential business leaders, such as Warren Buffett and Charles Munger, appear to have some interest in the idea of a single-payer approach, primarily because health costs continue to be a drag on the economy.

As I write this blog about single-payer nuances, the three approaches appear to be synonymous with one another. Any future state and national proposals will no doubt be a hodge-podge of all three approaches.

When that time comes, it will most likely become one hot potato!

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