How to Understand Rising Costs in the Healthcare Industry

Becker’s Hospital Review recently published a comprehensive roundup of statistics related to rising healthcare costs. This week’s blog looks at some of the key takeaways.

With each passing year, healthcare spending in the United States has continued to rise and 2015 will be no exception. To fully understand these rising costs, we must understand where the money is being spent as well as how much we are actually spending.

In examining costs in the healthcare system, it’s important to appreciate the occasionally confusing distinction between cost in comparison to charges and payments. A hospital’s charges are simply list prices for the medical services they offer. Such “charges” are merely the point where insurers begin to negotiate discounts for their members. Actual payment depends largely upon one’s healthcare plan. For instance, the payment rates set by Medicare are typically less than the actual cost of care. Hospitals themselves must also consider input costs, which consist of everything from the salary of clinicians to the cost of buildings and equipment.

The cost of hospital services themselves has been increasing. In 2000, expenditures on hospital services totaled over $400 billion. By 2013, that number had gone well over $900 billion. Between 2011 and 2013 alone, the prices hospitals set for common procedures increased by more than 10 percent.

Recent statistics from Kaiser State Health Facts showed that the average day’s stay at a state or local government hospital in 2013 cost $1,878; that price wasn’t far off from the average stay at for-profit hospitals, which totaled $1,791. In looking at for-profit hospitals in different states around the nation, North Dakota had the highest cost per day at $3,714 and Maine had the lowest cost per day at $815.

While healthcare spending today is certainly increasing, it’s worth noting that it is increasing at a lower rate now than in past years. Some of the lowest premium increases for employers and their workers were seen in 2013. Generally speaking, a wide variety of factors contribute to the diminished increase in overall costs, from sequestration to a historically weak economic recovery. Many predict that the situation is only temporary though. The Centers for Medicare and Medicaid Services (CMS) project that, between 2015 and 2023, healthcare spending will grow 6 percent annually.

Out-of-pocket healthcare costs consist of both premiums and deductibles. In 2013 alone, Americans spent $339.4 billion on out-of-pocket costs. Between 2000 and 2013, these costs saw a 68 percent increase.

This year saw a steep increase in the price of prescription drugs with a 13.6 percent jump in costs. In contrast, the average annual increase over the last five years was only 6.8 percent. All in all, the Kaiser Family Foundation found that between 2000 and 2013, health expenditures increased on prescription drugs by more than 123 percent.

Finally, the “Cadillac tax” is also expected to influence employer healthcare costs. It consists of a 40 percent excise tax on certain costly plans that employers provide for their workers. Ultimately, the tax is meant to reduce healthcare costs and, if current employers do nothing to change their health plans, about one third of them will incur this tax by 2018 according to a recent survey.

For the comprehensive roundup of healthcare cost statistics, visit: http://www.beckershospitalreview.com/finance/50-things-to-know-about-healthcare-costs.html