Where health costs may be headed

With the Affordable Care Act (ACA) set to take hold in 2015 there is still a lot of discussion on where health costs will be in the near future as many ponder if the costs will be contained by the actions of the ACA or if they will continue their march skyward.

If one was to take a deeper look at what are the root causes as to why health costs are inflating they may just conclude that there really is no simple quick answer, but at the core of the problem there just may be 4 very basic reasons why costs have nowhere else to go but up.

They are:

1. Tort reform – it is no secret that when a lawyer sues a doctor on the behalf of a patient because that doctor used the wrong color tongue depressor, costs will go up. Yes, there has been legislation limiting the amount that doctors have to pay due to a malpractice suit, but they still need to plan for any such issue which means they have to buy insurance. The average cost of this insurance is anywhere from $4,000 a year to $50,000 a year depending on Specialty & Residency and with any costs incurred by a company this cost will be passed on to the consumer.

2, The cost to educate health care providers – today’s colleges & universities are not cheap and the average student looking to earn a medical degree can expect to pay over $100,000 in costs just to get educated. Add that on top of the other bills they have to have in order to just live and the costs increase even further. As stated above, these costs will be passed onto the consumer.

3. Medicare – believe it or not, one the biggest culprits to rising costs is something we all have to get when we retire and some say it is the main driver behind rising costs.

Why?

Because Medicare is the only game in town for those that are 65 years old or older, retired and no longer covered by an employer or spouse’s employer health plan and it only reimburses health care providers at a fraction of what was charged.

For example:

A retired 66 year old person on Medicare realizes that it is “medically necessary” to have a colonoscopy. The rate that the physician charges to perform just the colonoscopy is set, on average in the state of New Hampshire to be $616.65.

After the procedure is done the physician will send Medicare a bill for,most likely around $616.65. The problem, Medicare will only reimburse that physician, on average, $285.08 in New Hampshire.

This is a reduction of cost for Medicare by as much as 53% and it is a loss of income for the physician at the same percentage.

So how does the physician make up the difference? By increasing his rates on the next patient that is seen no matter if that patient is Medicare covered or privately insured as health care providers cannot be discriminatory.

Here are the 2012 average rates for a colonoscopy in the State of New Hampshire, from Anthem:

 

Anthem rates

 

Ultimately, Medicare, which covers all retirees, one way or another, is driving up costs of health care by cutting its own bottom line by slashing the amount it will pay to ALL types of care givers.

4. Supply verse Demand – simple economics from Adam Smith may just reveal why this one cost has nowhere else to go but up. Today, there are roughly 47 million people retired and accessing Medicare with roughly 76 million people in the next generation helping to pay those costs through taxes.

We know that Medicare is being stretched to its limits with these numbers and what are we as a nation experiencing? Those 76 million in the next generation getting ready to retire and use health care.

Simply put: how are health costs going to be maintained when the number of users almost doubles in size while the tax revenue, the number of overall physicians and nurses and overall suppliers of medical equipment remains flat?

As stated previously, these are just 4 simple reasons why we may be seeing the overall cost of health care on the rise, but with our largest segment of our population heading towards retirement, a period when people start to use the healthcare system more than ever, it would appear that the costs have only one place to go…up.

 

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