Healthcare spending consumes personal income

October 15, 2009

Even if excess health spending, the gap between health spending and income growth, were cut in half, a very large share of income growth would still be devoted to healthcare

At current spending growth, a large share of increase in wealth over time will be absorbed by healthcare-44% between 2007 and 2020, according to new analysis from Health Affairs.

Even if excess health spending-the gap between health spending and income growth-were cut in half, a very large share of income growth will be devoted to healthcare (31%), according to Michael E. Chernew, PhD, Harvard Medical School Department of Health Care Policy, Boston.

“Over longer periods the estimates are more dramatic-63% between 2050 and 2083 in the best case,” Chernew says. “This is important because it illustrates that the status quo cannot continue. No matter what else managed care executives do, if they cannot solve the spending growth problem, some possibly drastic solution will be needed.”

Chernew suggests that some combination of payment reform and benefit design will be needed. For example, he points to Blue Cross Blue Shield of Massachusetts Inc.’s (BCBSMA) Alternative Quality Contract (AQC). First offered in 2008, the AQC pays doctors and hospitals based on the quality and outcome of the care they provide to patients. The AQC is designed to improve the quality of care members receive and cut current annual medical cost trends in half.

“The AQC offered by BCBSMA is a possibility, but we will continually have to experiment and face these challenges,” Chernew says.

Although no company wants to explain to its consumers why its product is costly, Shawn Jenkins, president and CEO of Benefitfocus, believes it is essential to educate members about premium cost-drivers.

“Explain to members how their lifestyle-diet, exercise, etc.-will result in additional needs for healthcare services or not,” Jenkins says. “Making that financial connection and providing them with wellness tools to manage their lifestyle can incent members to the right behavior.”

Finally, says Jenkins, executives must get creative in product design-such as rewards for positive behavior-to the extent the member anticipates and helps control the cost drivers.