50 things to know about healthcare costs

Total healthcare spending is expected to rise again this year and hospital prices are continually growing. From an aging population to Patient Protection and Affordable Care Act mandates, there are a number of factors influencing healthcare costs in the U.S.

Here are 50 things to know about those costs.

The difference between costs, charges and payments
1. Before delving into an analysis of healthcare costs, it is critical to understand the difference between healthcare costs, charges and payments. Hospital charges are essentially their list prices for medical services, which are different from hospitalization costs, or the actual amount of money insurers, patients or the government ends up paying hospitals in exchange for the services. There are then hospital input costs, which refers to the cost a hospital incurs to provide care to a patient. This includes both variable costs (salaries of clinicians, costs of supplies and medications) and fixed costs (overhead expenses and cost of equipment, land and buildings), according to a report from The Advisory Board Company.

2. The prices on a hospital's chargemaster bear little relationship to the amount most patients are asked to pay. That's because commercial insurers negotiate discounts with healthcare providers on behalf of their members, and Medicare and Medicaid set fixed payment rates for hospital services, which are often less than the actual cost of care. Additionally, most hospitals allow low-income patients who are uninsured to receive free care or care for a reduced charge.

3. Hospital list prices aren't completely irrelevant, however, as they usually serve as a starting point for negotiations with commercial payers.

4. List prices have also received a considerable amount of media scrutiny within the past few years. However, hospitals have fired back, saying the criticism is misplaced because list prices are not reflective of what patients actually pay.

5. The official estimates of total healthcare spending in the U.S. are the National Health Expenditure Accounts. The NHEA measures annual expenditures for healthcare goods and services, public health activities, government adminisration, the net cost of health insurance, and investment related healthcare.

Healthcare spending on the rise
6. Healthcare spending has steadily increased over the past decade. Total national health expenditures, including spending by federal and local governments, private companies, and individuals, was $2.9 trillion in 2013, or about $9,255 per person, as compared to about $1.8 trillion in 2003, according to a report from the Kaiser Family Foundation using data from the National Health Expenditure Accounts.

7. Although healthcare spending is going up, it is increasing at a lower rate than in the past.

8. In 2013, the combined spending on healthcare by households, businesses and the government went up 3.6 percent from the year prior, the fifth straight year healthcare spending increased by less than 5 percent following decades of faster growth, according to a report from CMS' Office of the Actuary published in Health Affairs.

9. A number of factors contributed to the slow spending growth in 2013, including the sluggish economy and sequestration — a 2 percent across-the-board cut in Medicare provider payments starting in 2013.

10. Healthcare spending isn't expected to continually slow. Improving economic conditions, the PPACA coverage expansions and the aging population drive faster projected growth in health spending in 2014 and beyond, according to CMS' National Health Expenditure Projections 2013-2023.

11. The projections show healthcare spending growth over the next several years, with spending predicted to hit $3.2 trillion in 2015.

12. The U.S. population is about 320 million, which makes 2015 the first year healthcare spending will reach $10,000 per person.

13. Health spending is projected to grow 6 percent annually from 2015 through 2023, according to CMS.

Cost of hospital services
14. Concerning only hospital services, health expenditures increased nearly 125.5 percent from 2000 to 2013. Total health expenditure on hospital services was $936.9 billion in 2013, compared to $415.5 billion in 2000, according to the KFF report.

15. The growth in healthcare spending is partially attributable to increasing hospital prices. According to data released by CMS in June, the prices hospitals set for a series of common procedures increased by more than 10 percent between 2011 and 2013 — more than the rate of inflation.

16. Hospitals' rising charges do not affect everyone the same. Because insurers negotiate lower rates with hospitals, most people with health insurance, including those covered by Medicare plans, will never receive a hospital bill with the hospital's list price.

17. Hospitals' rising list prices primarily affect the uninsured and people with coverage but who seek care at hospitals outside of their insurance network, according to the New York Times.

18. Over the last few years, insurers have been outlining narrower networks of physicians and hospitals, making it easy for patients to accidentally choose the wrong hospital and get stuck with massive bills.

19. Sometimes hospital charges are not in line with the services provided. For instance, hospital charges were on average 3.4 times the cost in 2012, according to a study based on Medicare cost reports that was published in Health Affairs. The charge-to-cost ratio has increased over time, as it was 3.07 in 2004 and only 1.35 in 1984, according to the study.

20. Increasing list prices is a simple way for hospitals to increase revenues, Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins Bloomberg School of Public Health in Baltimore, Md., told the New York Times. Even if hospitals are never paid the full amount they charge customers, raising the list price "gets them some cents on the dollar," he said.

21. According to the American Hospital Association, growing list prices merely reflect the increasing costs of running a hospital, noting that Medicare, which sets its own prices, pays less than the cost of providing care to patients in many hospitals. 

Costs broken down by hospital type and state
22. The average cost per inpatient day in 2013 at state/local government hospitals was $1,878, according to the latest statistics from Kaiser State Health Facts.

23. The average cost per inpatient day in 2013 was $2,289 at nonprofit hospitals and $1,791 at for-profit hospitals.

24. In 2013, the cost per inpatient day at state/local government hospitals was highest in Connecticut ($3,275) and lowest in Wisconsin ($396).

25. Among nonprofit hospitals, the cost per inpatient day in California was $3,500 — the highest of any state in 2013 — and lowest in South Dakota where the average cost was $1,234.

26. The cost per inpatient day at for-profit hospitals was highest in North Dakota ($3,714) in 2013 and lowest in Maine ($815).

Spending on prescription drugs and physician services is growing
27. Total health spending related to services from physicians and clinics increased nearly 101.7 percent from 2000 to 2013.

28. Concerning prescription drugs, health expenditures increased nearly 123.7 percent from 2000 to 2013, according to a report from the Kaiser Family Foundation using data from the National Health Expenditure Accounts.

29. Rising prescription drug costs significantly influence healthcare costs for U.S. families.

30. In 2015, the cost of healthcare for a typical American family of four receiving health insurance from an employer-sponsored preferred provider plan will increase by 6.3 percent, or $1,456, resulting in a total cost of $24,671, according to the 2015 Milliman Medical Index.

31. Prescription drug costs accounted for $467 of 2015's $1,456 total increase, which marks a 13.6 percent jump after a five-year period in which prescription drug costs rose by an average of 6.8 percent each year.

32. According to Scott Weltz, co-author of the MMI, the double rate of growth in prescription drug costs in 2015 was driven by "the introduction of new specialty drugs, a continued increase in compound drugs and price increases for both brand name and generic drugs."

33. Healthcare costs for families of four have doubled in the last decade and tripled since Milliman began tracking this information in 2001, Sue Hart, co-author of the MMI said.

Out-of-pocket healthcare costs are increasing
34. "The fact that healthcare spending growth has been so low for a number of years now does trickle down to what people themselves are actually paying out of their own pockets," said Larry Levitt, senior vice president at the Kaiser Family Foundation. "The problem is, even when healthcare spending is growing so slowly like this, when people's incomes are stagnating, it still doesn’t necessarily feel so good."

35. Out-of-pocket healthcare costs — defined as premiums plus deductibles — accounted for 9.6 percent of median income in 2013, up from 5.3 percent 10 years prior, according to a Commonwealth Fund survey report released in January.

36. Total out-of-pocket healthcare spending was $339.4 billion in 2013, up approximately 3.2 percent from the previous year and up 68.4 percent from 2000, according to the KFF report.

37. Out-of-pocket costs will likely continue to rise next year, as many health insurers released proposed rate hikes above 10 percent, with some requesting increases of as much as 50 percent, for plans sold on the PPACA insurance exchanges.

38. The increases are attributable to insurers having access to more data, according to Mr. Levitt. "Insurers seem to be reporting higher trend, which means they are seeing bigger increases in healthcare costs," Mr. Levitt told Politico. "But really what's going on here is they now have data showing what the risk pool looks like."

39. After reviewing a full year of data, some insurers are realizing the risk pool, or the balance between sick and healthy customers, is more uneven than previously expected, according to The Hill.

A breakdown of out-of-pocket healthcare costs
40. Looking specifically at hospital services, out-of-pocket spending was $13.5 billion in 2000. That number jumped to $32.6 billion in 2013.

41. Out-of-pocket spending on prescription drugs has steadily increased over the past decade. In 2000, total out-of-pocket spending on prescription drugs was $33.7 billion. That number jumped 36.2 percent to $45.9 in 2013.

42. Concerning services from physicians and clinics, out-of-pocket spending was $55.4 billion in 2013, up nearly 70.5 percent from $32.5 billion in 2000.

Employer healthcare costs
43. In 2013, large employers and their workers saw the lowest healthcare premium increases in more than a decade, with rates averaging 3.3 percent higher than they were in 2012, according to an analysis from human resources solutions firm Aon Hewitt.

44. By comparison, health insurance premium rates went up by 4.9 percent in 2012 and 8.5 percent in 2011.

45. The average healthcare cost per employee for large companies was $10,471 in 2013, compared with $10,131 in 2012, according to the Aon Hewitt analysis.

46. Employees were asked to contribute an average of $2,303 toward their total premium costs in 2013, up from $2,200 in 2012.

Influence of the 'Cadillac tax' on employer healthcare costs
47. According to an independent survey by the International Foundation of Employee Benefit Plans, employers expect the cost of PPACA compliance to increase even more next year and beyond.

48. The IFEBP survey shows that 27 percent of respondents are predicting that the largest increase will occur in 2018, the year the "Cadillac tax" goes into effect.

49. The "Cadillac tax" is a 40 percent excise tax on high-cost health plans some employers provide their workers. It is meant to reduce overall healthcare costs by encouraging employers to offer cost-effective health benefits. Under the PPACA, both fully insured and self-funding employer health plans will be subject to the tax.

50. Approximately one-third of employers will be hit by the tax in 2018 if they do nothing to change their plans, according to a 2015 Mercer survey.

 

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