Take a look at the following graph (click on the image if you want to enlarge it).
This little beauty was tweeted out on February 17, 2018 by @marketwatch.
The primary problem we have in the employee benefit space is the cost of insurance – at least that’s what most people think.
This year, we have been routinely presenting 13-15% increases for our clients’ medical policies, compared to what they paid last year. It’s no surprise when the insurance carriers presenting these big increases get called-out. Words like “Greedy”, “Unethical”, or “Ridiculous” are typical responses from our clients (if we exclude the more PG-rated ones).
And who can blame them? After all, if you are paying $600,000 per year for a policy to cover your employees, a 13% increase amounts to an eye-watering $78,000. Yikes.
I don’t care how well the economy is doing. That kind of increase can affect your bottom-line pretty fast. An adverse reaction is understandable.
What You Think Is The Problem, Isn’t The Problem
It is these increases, in my opinion, that made it possible for President Obama to convince the American Public and its representatives that it was important for the Government to get involved via the Affordable Care Act. Regardless of whether you think that was a good idea or not, it is easy to follow the bouncing ball. An insurance company gives you a 13% increase every year, the President says he is going to stop them. People cheer.
The problem is that isn’t the problem.
Now before you go and say I am defending insurance companies, let me defend myself instead. Insurance companies – particularly health insurance providers – are certainly part of the problem. They are tone deaf, offer confusing policies and procedures, make people jump through hoops, and generally don’t help themselves as far as public relations go.
But that doesn’t mean they are the whole problem.
Take another look at that graph. You’ll see that while hospital services have gone up more than 200% in the last 20 years, the cost of your TV has gone down 100%. New cars and household furnishings are flat, but medical services in general are 100-125% higher than they were in 1997.
Wages, on the other hand, have only increased by 56%.
The other item shown here is college tuition. With four children of my own (two in college and two done), I know all about that from customer side. But since I am an employee benefits expert and not a college financing expert, I will leave that discussion to someone else.
The Cost Of Healthcare
So the underlying cost of your health insurance plan – the one your insurance company keeps increasing on you is – along with college tuition, textbooks, and childcare – the fastest growing cost in goods and services since 1997.
Not that the last 20 years tells the whole story, either. Remember Hillary Care? Hillary Clinton thought she had a mandate to change the system as well. That was because the cost was already skyrocketing. All of that fun stuff was PRIOR to this chart.
So the problem has been going on for closer to 30-40 years.
So what should we be focused on? It is THE COST OF CARE. That’s because the COST of the CARE we are getting in this country is skyrocketing. The reasons why and the solutions we will discuss in other blog posts, on other days. But the first fact we need to get our heads around is that the cost of medical services are going up faster than any other item in America.
Remember that TV that cost you $1,200 dollars 20 years ago? A TV that is actually better now only costs you $500. At the same time an MRI that cost $800 20 years ago now costs double that.
A math wiz might say that a 200% increase over 20 years only comes out to about 3.6 percent. And according to Price Waterhouse Cooper’s Health Research Institute, employer medical cost trend is predicted to be 6 percent higher in 2019 – the same as it was for 2018. Those numbers are both a lot lower than 13 percent increases we are giving out, so there are other factors like utilization, aging population, state and Federal mandates, etc.
So what should you take from this graph? The fact that medical costs continue to go up and almost no one is doing anything about it. What happens 20 years from now?
If you think the Government can step in and lower costs, check out this article from ABC News that explains Bernie Sanders’ “Medicare For All” plan would cost $32.6 Trillion over the next 10 years. Given that some sources estimate the Federal budget for 2019 at 4.4 Trillion, a $3.2 Trillion increase per year would require some serious tax increases. Let’s agree that we don’t have the money for that plan right now at least.
It’s Time For A Rethink – And Fast
What we need to do is focus our pressure on the medical services industry. I don’t believe it when people say our system does NOT provide the best outcomes or care. I know there are studies for this and that, but I still say our system is filled with really smart people who have really smart solutions.
Unfortunately, cost is not as much a limiting factor as it is in other industries. And asking insurance companies to do that cost-containment ends up not working too well (see our video on medical loss ratios for more on that).
We need to find ways to innovate that make cost-saving innovations almost as important as life-saving innovations. Or else, at some point, we will not be able to afford the life-saving care available.