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Recent developments and analyses of the healthcare sector compel me to address the alarming rise in healthcare costs. We are witnessing the steepest climb since 2012, a pivotal year that saw the implementation of the Affordable Care Act (ACA).
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Affordable Care Act and its Implications
The ACA was crafted with the noble ambition of making healthcare more accessible and affordable for Americans. However, some unintended consequences have emerged from its implementation. Chiefly among them, healthcare plans now lack the incentive to manage and control costs diligently. The framework of the ACA unintentionally placed insurance companies in a position where increased payouts to providers translated to more profit, rather than encouraging thriftiness and cost-efficiency.
Additionally, the law created an incentive for insurers to acquire clinics, pharmacies, and the like, and to steer customers to them rather than rival providers. This strategy channeled revenue from the profit-capped insurance business to uncapped subsidiaries, which in theory could allow insurers to keep more of the premiums paid by patients.
Pharmaceuticals and Vaccine Pricing
Another layer of complexity to our rising costs is the pharmaceutical sector. The U.S. is unique in allowing pharmaceutical companies to advertise directly to consumers. Consequently, patients, influenced by polished commercials, are often inclined to request specific drugs, bypassing a physician’s expertise in the process. This leads to potential over-prescription and soaring drug expenses.
Moreover, recent pricing changes in vital vaccines have intensified the strain. Pfizer and Moderna, for instance, significantly increased the prices of their Covid-19 vaccines this year. As a result, the federal government now finds itself paying almost three times the original price per dose. Alarmingly, this rate is higher than what is being paid by countries that invested considerably less in vaccine research and development.
Related: Why Better Employee Benefits Can Be More Attractive Than Higher Salaries
Ignoring the Obvious
Two in 5 adults have obesity and 1 in 11 adults are considered severely obese. At 36.2% according to WHO, the United States is the most obese developed country in the world. It is well established that obesity is prevalent, associated with adverse health consequences, compromises the quality of life, and poses a burden on the health care system. There is a long history of ineffective dietary recommendations that ignore food processing as driving the obesity epidemic. It is a crisis that politicians are too afraid to take on for fear of being insensitive.
Inflation in Staffing
Another undeniable pressure on healthcare costs comes from the rising inflation in staffing across the sector. As demand for healthcare professionals outpaces supply, salaries and benefits have naturally seen an uptick. While this is a testament to the importance and value of healthcare workers, it undeniably contributes to the escalating costs of healthcare services. Just this week in California, we saw a strike with the union demanding higher wages.
Demographic Changes
Lastly, it’s essential to consider the demographic shift. In 2010, the segment of the U.S. population aged 65 and older was at 13%. Today, it stands at over 16%. This increasing percentage corresponds to more significant healthcare needs and, subsequently, a surge in costs.
New Strategies for Cost Management
As a consulting firm deeply entrenched in these challenges, we’ve been closely monitoring corporate responses. Many companies are proactively taking the reins to control pricing and costs. We are seeing a trend toward exploring self-insured models, reference-based pricing strategies, and even a rollback of the expansive coverage of benefits. This rollback is an effort to counteract the ‘great resignation’ and strike a balance between employee retention and cost-effectiveness.
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While the ACA has undoubtedly made healthcare more accessible for many, the interplay of its unintended consequences, rising drug prices, staffing inflation, and demographic shifts have synergistically elevated costs. As always, we are here to guide and assist you in better understanding and maneuvering through these intricate challenges. If you are not exploring self-insured or partially self-insured options, I would encourage you to reach out to our team and ask how it can help your company.
