“U.S. health-care spending to climb 5.3% in 2018” and Beyond (Part 1)

The U.S. Government Department of Health and Human Services and the Office of the Actuary in the Centers for Medicare and Medicaid Services (CMS) released their annual National Health Expenditures Projections for the period of 2017-26.

I must admit, since I have been in healthcare, I have looked forward to two annual reports from CMS.  One of the reports is the actual cost expenditures for the previous two years usually looking back 10 years retrospectively.  The 2016 report is the latest year reviewed and was just reported in December of 2017.  The second is this projections report going forward 10 years.  Although the numbers have fluctuated, the path has not.  America is facing a financial catastrophe in escalating healthcare costs.  We believe that it can only be avoided by taking proactive steps and materially changing the way we use technology and patient engagement.

The headline figure projects that healthcare in the U.S. will increase by an average nominal 5.3% in the next decade.  That number is staggering at $3.48 trillion (USD) and projected to grow to $5.69 trillion (USD) by 2026.  However, we will not know the actual number for 2017 until the end of 2018 or early 2019.

Based on these projections, during that 10-year period healthcare expenditures would go from 18% of GDP to 19.7% of GDP by 2026.  Not being an economist, it is hard to argue with the government analysis.  I am doubtful it will not be worse.

The assumption is that U.S. GDP will grow from $19.35 trillion (USD) to $28.90 trillion (USD) in 2026.  That is a nominal GDP growth rate of 4.5% (before accounting for inflation).  We now get deep in the weeds as to how much real growth we will have, net of inflation, and how that inflation will or will not affect healthcare.  More on that quant analysis later.

For the period of 2008-13, healthcare expenditures grew at a rate of only 3.8% per year; historically, one of the shallowest increase periods going back to 1965.  For 2014-2016 the rate increased to an average of 5%.  There has been some debate as to why the rate was so low in 2008-2013, and the reality is that years 2008-2010 were the real outlier, as we as a nation plunged into the Great Recession.

The impact on the quality of health and healthcare cost was material, as consumers deferred care, skipped care altogether, and did all they could to not spend what they did not have.  Still, one of the major causes for bankruptcy rates during that period was healthcare.

If you ask me, I will quote from a 2009 study published in The American Journal of Medicine that revealed that 62.1% of all bankruptcies in 2009 had a medical cause.  From the study:

Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients, $17,749 for those with private insurance at the outset, $14,633 for those with Medicaid, $12,021 for those with Medicare, and $6,545 for those with Veterans Affairs/military coverage.  For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568.

Among common diagnoses, non-stroke neurologic illnesses such as multiple sclerosis were associated with the highest out-of-pocket expenditures (mean $34,167), followed by diabetes ($26,971), injuries ($25,096), stroke ($23,380), mental illnesses ($23,178), and heart disease ($21,955).

Hospital bills were the largest single out-of-pocket expense for 48.0% of patients, prescription drugs for 18.6%, doctors’ bills for 15.1%, and premiums for 4.1%.  The remainder cited expenses such as medical equipment and nursing homes.  While hospital costs loomed largest for all diagnostic groups, for about one third of patients with pulmonary, cardiac, or psychiatric illnesses, prescription drugs were the largest expense.

If you look at the graph above, and we accept the published reports that over 60% of all U.S. bankruptcies were healthcare related, we must conclude that either the improving U.S. economy or the Affordable Care Act of 2010, or both, had an impact in U. S. bankruptcy.

Here is why this is important:  if people restricted their care and the largest issue in bankruptcy was due to healthcare, then billions of dollars in care was never paid for and/or it was charged off or discharged in bankruptcy.  This could have been one of the arguments for the below trend line growth in healthcare expenditures for the period of 2008-10.

The reason we make these points is that we believe it is nearly impossible for healthcare cost not to exceed the projections of CMS, as there is no way they won’t exceed the 20% of GDP before 2026.  We will discuss that more in a future blog.

Today, it is time to make better use of technology to make a material impact on healthcare cost. This is not to just throw technology at the problem; it is to build a true wellness vision of healthcare.  It is based on a total patient personal wellness electronic record (PWeR) and expand to integrate IoT tools/devices and telemedicine, to engage the patient at every level.  Could you imagine if Facebook had built an EHR?  I would use the amazing technology to track, connect with and improve the patient experience.

In the next blog, we will address why the financial and demographical wave we are in is bigger than what most think, as it impacts GDP and healthcare expenditures.

-Noel J. Guillama, President