Health Care’s Value Problem Part One: Distinguishing Results and Causes

By Bob Smith, Associate Director, CBGH

 

In 2016, an employer-sponsored PPO (preferred provider organization) health plan for an American family of four costs $25,826 on average – an eye-popping three-fold increase over 2001 when it was $8,414.

That is the key finding recently released in the medical index report assembled by Milliman, a global consulting actuary.  But it is not the only significant observation Milliman makes.  Others include:

  • Although the “Milliman Medical Index” or MMI, measuring both employer and enrollee costs, increased between 2015 and 2016 showed the lowest annual increase of the last 15 years, the 4.7% increase still far exceeds the CPI – as well as the median household increase.
  • Employees are shouldering a greater proportion of costs.  In 2001, employees paid 39% of the premium. They now pick up 43% of the tab.

Here’s another way to read those findings:  Cost increases are stifling economic development and weighing upon corporate competitiveness while they are cannibalizing employee raises and draining families’ discretionary income.  Or let’s put it more simply: health care has value-proposition problem.

So to what does the Milliman report attribute the ongoing, disproportionate increases?

“The ongoing increases are driven by a myriad of factors, including the disconnect between healthcare consumption and financing…. In addition, healthcare costs are continually driven upward by the fee-for-service payment mechanisms, by inefficiencies in the delivery systems, and by our efforts to improve longevity and quality of life through new technologies.”

Well, okay.  True enough – as far as that goes.  But if we’re just going to inventory contributing factors, then why overlook the obesity epidemic, the lack of pricing and quality transparency, the lack of patient compliance, the fact that premium increases benefit insurers, and the world’s highest administrative costs?  Each plays a role.

Simply inventorying a smorgasbord of issues is hardly helpful for an employer who actually wants to do something about it.  Instead, we would argue that while some of these factors are causes, many others are, more accurately, the results of other, largely unseen causes.  For the most part, we would argue, the consistent inefficiency and inconsistent effectiveness that characterizes today’s health care reflect symptoms and not causes and that the best way to understand the cause is to conduct a root cause analysis.

In part two of a three-part blog, we’ll apply a root cause analysis to health care’s value problem.  Only by doing so can we then consider, in part three, what employers – who finance virtually all commercially provided care – can do.