Straight Talk about Affordable Healthcare

“Affordable healthcare” might be the most over-used and confusing term used in public discourse these days. It’s akin to “quality of care” and “access” as phrases that mean something different to everyone though every politician and trade group lay claim to knowing how to deliver it better.

Polls show it ranks just below national security as a concern to most Americans. Academics have correlated affordability challenges with adverse outcomes and poor health status for households and entire communities. And it has figured prominently in the debate over the Affordable Care Act, with both parties claiming to be the protector of affordability. One thing’s for sure: the issue of affordable care is not going away soon. But is the issue understood?

The Facts

Recent reports provide an important context: affordability is an issue for large numbers of U.S. individuals and households.

  • 62% of Americans surveyed, including 62% of Republicans and 67% of Democrats, consider affordability the top issue for the healthcare industry. (Reuters/Ipsos). Rising insurance premiums (46%), rising costs not covered by insurance (44%) and rising costs of prescription drugs (35%) are the public’s specific concerns about the healthcare industry—above narrow networks (11%), quality of care (8%) and other issues (Oliver Wyman)
  • The numbers of employers who provide employee health insurance coverage decreased from 56% in 2015 to 53% in 2016. From 2005 to 2015, employer insurance premiums increased 61% while employee contributions increased 83%. Employee contributions to their insurance premiums are now 31% of total. (Kaiser/HRET)
  • 79% of employees saw their healthcare costs climb in 2016, up from 69% in 2015. 56% of people who saw their costs increase last year say their financial goals -- namely, saving for retirement and paying off debt -- are now suffering. And two-thirds of workers whose healthcare costs went up have been forced to cut back on their leisure activity. (Merrill Lynch Bank of America 2017 Workplace Benefits Report)
  • 54% of middle class families in the US can no longer afford health insurance; in 1981, only 15% of middle class families couldn’t afford health insurance. (Altarum Institute)
  • 6 of 10 adults who had trouble paying their premiums had incomes below 250% of the FPL and 3 of10 were under aged 35 years. Nearly half of those who had trouble paying their premiums had dependent children (Kaiser Family Foundation)
  • Half of Americans without health insurance—and 20% of Americans with health insurance—struggle to pay medical debt. (Kaiser Family Foundation
  • A quarter of privately insured working-age adults 18-64 have high health care cost burdens relative to their incomes. (2015 Commonwealth Fund Health Care Affordability Tracking Survey).

The Realities

Based on these facts, a number of conclusions may be drawn:

1-The issue of healthcare affordability impacts both low and middle-income households. It’s not just a concern to lower income Americans and those lacking insurance coverages. It’s pervasive and intensifying as employers shift health costs to their employees and as premiums go up at double digit rates for the majority of privately insured Americans. It’s an issue for at least half of America’s households.

2-Affordability is about more than insurance premiums. Having health insurance, either through a public program or private plan, is better than being without, but it does not shelter a household from affordability pressures. The focus in Congress on reducing insurance premiums for middle-income households ineligible for Medicaid is only a partial solution to affordability. And for households with family members requiring caregiving services, those with pre-existing conditions requiring expensive medications and those with chronic ailments, it’s more problematic.

3-Affordability is a systemic challenge for the U.S. health system. The root cause for the affordability issues facing consumers cuts across every sector in healthcare. No sector bears the blame more than others. The economics of the U.S. health system have rewarded innovation for those who take risks and provide its capital. It’s a capitalistic system, especially in the drug, device and health insurance sectors, where returns on investment require growth. Affordability for consumers has been secondary to the business interests in each sector. It’s not been a focus. Transparency about the costs and prices negotiated between suppliers, purchasers and providers is limited and largely inaccessible to consumers.

4-Affordability will be a prominent issue in the 2018 and 2020 elections. There’s no doubt healthcare affordability will be a wedge issue in coming elections. Thoughtful campaigns will offer solutions to reduce affordability pressures on households, and Congress will debate ways to advance policies and programs that enhance affordability. But it will likely remain a complicated issue.

In economics, affordability is defined as “a measure of someone’s ability to purchase a good or a service” In housing, it’s tied to a person’s income and indebtedness. In buying an automobile, a person’s income, indebtedness and credit-score determines the loan value for the buyer. But in healthcare, there is no widely-held definition for affordable healthcare. The ACA declares that 9.69% of household income is a threshold for employer insurance coverage, but health costs for most consumers involve significantly more than their premiums. And it’s complicated further by two factors:

  • It’s impossible for consumers to predict their health costs. There are too many unknowns. Costs associated with an accident, expensive medicines needed to treat a condition, insurer premium increases and benefits’ design that eliminate coverage or increase employee out of pocket costs, hospital charges for even the simplest procedures and tests are inaccessible and unpredictable for consumers. Historic trends from claims data are informative but not predictive, and transparency for pricing has been shown to have negligible effect on consumer purchases.
  • Most consumers do not think about affordability when making their buying decisions. The major purchases in healthcare—a scheduled operation, treatment for cancer, use of specialistset al—are not the result of a thoughtful analysis of their costs and impact on household solvency.

I believe the most important issue in the next round of our health reform discussion is affordability. It requires us to be honest about why it’s become so problematic and creative in finding solutions. It’s an issue that must be addressed head on.

Paul

P.S. At press time, the prospects for passage of the Graham-Cassidy bill to repeal large portions of the Affordable Care Act appear dim. Four GOP Senators—Paul (KY), Murkowski (AK), Collins (ME) and McCain have expressed concern. Two of these will have to vote FOR the law for it to pass the Senate, and then move to the House, and all this by September 30. I was in Utah, Texas, Minnesota, Indiana and Tennessee last week. Local media coverage has focused primarily on the financial impact of the bill’s Medicaid cuts and not larger aspects of the law including the stability of the individual insurance market and elimination of mandates for individuals and employer coverage. Stay tuned.