General spending trends sloping down: Past 40 years actually show overall medical costs on gradual decline

August 1, 2007

Get your Power Point ready because the annual season of strategic planning is upon us. There are quite a few givens that we know we'll have to work with for 2008 in spite of the fact that the year still has several good months left in it.

Get your Power Point ready because the annual season of strategic planning is upon us. There are quite a few givens that we know we'll have to work with for 2008 in spite of the fact that the year still has several good months left in it.

According to PwC, the past three or four decades show a general pattern of ongoing deceleration in medical cost trends for Medicare and private insurance. There were some big ups and downs along the way, but the slope has a downward pitch. This leads us to believe that our hard work to manage, educate, incentivize, predict, intervene and leverage has had an effect, even taking inflation rates into account.

SOLID PLANS

Two short-term trend influences are the slower spending growth for prescription drugs and the increased transparency and cost sharing with employees. But I wouldn't count on those too heavily in 2008. For one, the Centers for Medicare & Medicaid services predicts that drug spending is likely to accelerate over the next several years because of utilization growth.

Many colleagues have also told me that employers are maxxed out on cost-sharing opportunities, so that trend has leveled off. About 4% of the commercially insured population are enrolled in a consumer-directed health plan-which is heavy with cost sharing-but with higher out-of-pocket costs, interest is waning.

Two long-term influences include the health-management approaches that help reduce and avoid costs, and the slow-but-sure adoption of IT in healthcare.

In the past, anyone who suggested higher premiums for those with unhealthy lifestyles would hear a quiet gasp of horror. Today, employers offer premium reductions to the healthy (which is the same thing really), and everyone takes it in stride. Going one step further, employers are offering added incentives for employees to get healthy. PwC says there's a 3-to-1 return on investment for preventive services and health promotion, and I'm certain that employers are a long way from getting maxxed out on wellness opportunities.

I haven't heard anything new about health IT in a long time, however. Maybe it's because David Brailer, the first National Health Information Technology Coordinator and a strong voice for the cause, has left the position or maybe it's simply because chief technology officers all over the country are spending less time talking strategy and more time diligently implementing their programs. I'll be anxious to see some quantitative cost-reduction results from their efforts.

One exercise I always find helpful is going back and looking at my prior year's strategic plan-the earliest version-and comparing it with what was actually implemented. I can't say it's improved my foresight, but it has helped me brush up on my Power Point skills.

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com