Back Button
Menu Button

Eliminating Unnecessary and Inappropriate Care – Could Health Premiums Drop to 2010 Levels?

Here’s a quiz regarding the estimated annual cost of inappropriate and unnecessary healthcare in the U.S.  Please select the answer you believe reflects the best cost estimate:

a. $210 billionInstitute of Medicine (2013)
b. $265 billionOliver Wyman (2017)
c. $393 – $958 billionGoodman, et al. (2011)
d. $1 trillion + – Various sources
e. No one really knows

The correct answer is, “e,” as measurements vary widely based on different methodologies – such as the year it was performed, and just how broad the term, ‘inappropriate,’ was used in each analysis. However, as new reports become published, unnecessary care is typically considered between 20 and 30 percent of overall needed care. In fact, based on a 2017 study of surveyed physicians regarding unnecessary care, physicians reported that more than 20 percent of overall care was not needed. Yes, even physicians acknowledge that at least one-fifth of care is not appropriate!

Despite the ABIM Foundation’sChoosing Wisely” campaign, which began in 2010 and has been widely adopted by at least 80 specialty societies, 75 percent of physicians believe unnecessary care is still a serious problem. Additionally, 69 percent said the average practitioner ordered useless tests and procedures at least once a week. Noted physician, Marty Makary of Johns Hopkins University, theorized that “Ninety percent of C-sections are unnecessary; 80 percent of stents are inappropriate; and 30 percent of people with cancer get the wrong treatment.”

But our broken healthcare ‘system’ allows for defective and unsuitable care to be paid out anyway. In a $3.5 trillion healthcare industry, inappropriate costs can account for as much as 30 percent of the total healthcare economy, or over $1 trillion annually. To put this number into perspective, the Congressional Budget Office reported that U.S. defense spending during fiscal year 2017 was $590 billion.

The above estimates do not specifically include another form of ‘waste’ as it relates to the fragmentation of care – the complexity of administering healthcare. This complexity leads to additional indirect costs and duplication of effort because there are so many different health plan payers with a myriad of administration functions. Functions which cause providers to hire additional staff to meet health plan requirements, like pre-authorization, administering various billing methods, etc. This is yet another problem with add-on costs that provide little-to-no value in a system already wrought with excessive waste of unnecessary care. I will not be addressing waste due to indirect costs in this blog.

Unnecessary and Inappropriate Care

Unnecessary and inappropriate care commonly consists of wasted spending due to ‘defensive medicine,’ whereby physicians order more (than necessary) tests and procedures to avoid potential malpractice lawsuits. Some studies suggest this amount of waste is not as great than commonly thought, perhaps less than three percent of overall costs. Another reason for inappropriate care is due to patients wanting unnecessary care. Misdiagnosis (overdiagnosis or no-diagnosis) also impacts the overall cost of healthcare. Of course, medical mistakes, both preventable and otherwise, also greatly impact healthcare costs, in addition to societal costs for patients and our communities.

Put another way, if inappropriate care could somehow be scrubbed from the healthcare system, it would make sense that our costs (premiums and, consequently, out-of-pocket expenditures for care) would correspondingly drop by a commensurate amount. According to the Kaiser Family Foundation, employer-sponsored health coverage continues to cover more American workers than earlier this century. Employer-sponsored plans in 2017 covered 156 million people, dwarfing the next largest form of health coverage, Medicaid (74 million).

Employer plan costs would be greatly impacted by eliminating inappropriate and unnecessary care. Another big takeaway: Employee takehome pay would increase, providing an economic boost.

Paying 2010 Premiums

In 2018, the 19th Iowa Employer Benefits Study© reported that the average monthly single and family health premiums were approximately $573 and $1,454, respectively. If about one-third of inappropriate care was eliminated, these rates would also be reduced, presumably by the same ratio (if we assume waste is across the board in all medical settings and procedures – and it appears to be). The newly-adjusted (unscientific) rates would now become $401 (single) and $1,017 (family) – rates that we have not seen in Iowa since our 2010 Iowa Employer Benefits Study©.

If we could eliminate ineffective, harmful and wasted care, we could revert to paying insurance premiums we paid eight years ago – even without eliminating bloated administrative costs. In the past, medical cost trends have historically exceeded the consumer price index, but by eliminating this excessive waste, and assuming the waste is continuously ‘engineered out’ of the delivery system, the medical-cost trend should be more favorable in the future. The problem, however, is not a small one. This problem comes from the idiom, “One man’s loss is another man’s gain.”

No organization or practitioner desires to lose revenue, because their income would be adversely impacted. Yet, obfuscating the cost by using chargemasters, backroom discount pricing methods and other unorthodox means to keep costs opaque serve no one other than those who allow our system to be ‘gamed’ for profitable purposes. Smarter regulation, appropriate technology and quality improvements can all reduce waste. Additionally, we must find the antithesis of greed.

As a country, think about how such ‘savings’ could be diverted to fund other programs that would proactively impact population health. We live in a world of trade offs, and trading wasted care (and its’ associated cost) with preventive health-related programs seems to make a lot of sense.

Market-Based Healthcare?

Let’s be honest. Our healthcare ‘system’ is not a true market-based model. It is different from any other part of our economy. True market-based models are characterized by three things not currently found in U.S. healthcare:

  1. Transparency in cost and quality.
  2. Accountability for care across the continuum (payment would be connected to outcomes that really matter).
  3. Information that allows for consumer choice and competition – patients need to be treated as consumers when appropriate.

All three allow us to get to the value of care, and ultimately, a market-based model that would theoretically provide checks and balances to keep the system ‘honest.’

Overall, a market-based model has more clarity around the producer, the seller and the buyer.  Historically in healthcare, the buyer (consumer) has not been part of the equation.  It is not yet clear the role in which the buyer will play as the healthcare system evolves. Currently, healthcare services are paid by somebody else – such as employers (offsetting employee pay), insurance companies or the government. This disconnect between the seller and producer from the ultimate consumer allows for perverse behaviors which are not commonly found in other market-based systems.

Payments Must Incent Appropriate Outcomes

Until we have payment systems that reward appropriately-determined outcomes, a market-driven system in healthcare will be merely a dream, not reality. In fact, if our hodge-podge system continues without much needed disruption, a true market-based system may not have a chance to see daylight. Market systems may wring out the unnecessary additive costs over time, but this cannot be done without having the three components in place as mentioned earlier.

The simple question is this: How can we turn back the clock to eight years ago and pay what we really should be paying today? Eric Coldwell, an analyst with Baird Equity Research put it quite succinctly when describing the push for transparency and value-based care: “The U.S. healthcare system is a sandcastle and the tide is coming in.”

To stay abreast of employee benefits and healthcare issues, we invite you to subscribe to our blog.