Analysts and economists weigh in on why healthcare takes more and more out of people’s budgets every year
Every year the cost of healthcare seems to grow faster than income. Citing different experts and academics, an article on Canadian Business explains the unique features of the healthcare market that encourage yearly price surges.
First, buyers in the healthcare market are less inclined to shop around for lower-cost providers. Insurers and employers have long been providing incentives to encourage shopping, raising deductibles or out-of-pocket costs on coverage and giving patients access to price and quality comparison tools.
But according to Renya Spak from benefits consultant Mercer, the strategy doesn’t work for healthcare services with huge associated costs, such as surgeries, because much of the bill is covered by the insurer and most value-for-money offerings would require travel. “It’s not human nature to be rational thinkers about healthcare cost decisions,” she said. “It will never be just like buying a lawnmower.”
In addition, many would sooner give up other items on their budget than possibly compromise on healthcare. “What good is a better house if you are too sick to enjoy it?” said economist Charles Roehrig, who is also vice-president of the non-profit Altarum Institute’s Center for Sustainable Health Spending.
On the supply side, healthcare innovations like new drugs and medical devices tend to focus on effectiveness rather than cost, noted Employee Benefit Research Institute economist Paul Fronstin. And the costs remain high because insurers that pay the bills have limited ability to bring down prices. “Every year, it’s kind of like Christmas: they deliver all this new stuff and of course they deliver it at high prices and insurance covers it,” said Wharton School health economist Mark Pauly.
Some economists and experts believe stakeholders can only apply the brakes to escalating costs through drastic measures. Insurers could reduce patients’ doctor choice to increase their leverage over cost of care. Employers could be strong negotiators since they cover so many individuals, said Spak, noting that some companies have actually cut out health insurers by dealing directly with large hospital systems.
Health spending may also decrease if manufacturers release new technology and drugs less quickly, said Brookings Institution economist Louise Sheiner. However, she doesn’t think healthcare costs will stop climbing until people decide to stop allocating more of their budget toward it.
“You never say never, but I don’t think we should expect that any time soon,” she said.
Related stories:
Canada’s high healthcare spending belies modest-to-low performance
Employers need to remain vigilant on exorbitant drug costs: Empire Life VP
First, buyers in the healthcare market are less inclined to shop around for lower-cost providers. Insurers and employers have long been providing incentives to encourage shopping, raising deductibles or out-of-pocket costs on coverage and giving patients access to price and quality comparison tools.
But according to Renya Spak from benefits consultant Mercer, the strategy doesn’t work for healthcare services with huge associated costs, such as surgeries, because much of the bill is covered by the insurer and most value-for-money offerings would require travel. “It’s not human nature to be rational thinkers about healthcare cost decisions,” she said. “It will never be just like buying a lawnmower.”
In addition, many would sooner give up other items on their budget than possibly compromise on healthcare. “What good is a better house if you are too sick to enjoy it?” said economist Charles Roehrig, who is also vice-president of the non-profit Altarum Institute’s Center for Sustainable Health Spending.
On the supply side, healthcare innovations like new drugs and medical devices tend to focus on effectiveness rather than cost, noted Employee Benefit Research Institute economist Paul Fronstin. And the costs remain high because insurers that pay the bills have limited ability to bring down prices. “Every year, it’s kind of like Christmas: they deliver all this new stuff and of course they deliver it at high prices and insurance covers it,” said Wharton School health economist Mark Pauly.
Some economists and experts believe stakeholders can only apply the brakes to escalating costs through drastic measures. Insurers could reduce patients’ doctor choice to increase their leverage over cost of care. Employers could be strong negotiators since they cover so many individuals, said Spak, noting that some companies have actually cut out health insurers by dealing directly with large hospital systems.
Health spending may also decrease if manufacturers release new technology and drugs less quickly, said Brookings Institution economist Louise Sheiner. However, she doesn’t think healthcare costs will stop climbing until people decide to stop allocating more of their budget toward it.
“You never say never, but I don’t think we should expect that any time soon,” she said.
Related stories:
Canada’s high healthcare spending belies modest-to-low performance
Employers need to remain vigilant on exorbitant drug costs: Empire Life VP
