Thursday, March 4, 2010

A new survey says that we may be able to reduce about half of the growth in health care costs.

Working for an insurance company, a lot of interesting surveys come across my desk. Here’s one that’s really mind-boggling from the Lewin Group.

Lewin Group researchers looked at data from the Office of the Actuary of the Centers for Medicare and Medicaid Services, which is a US federal agency which administers Medicare, Medicaid and the Children's Health Insurance Program. They were trying to figure out what specific factors led to the annual increases in the cost of health care in the United States.

The bad news is that they found 51% of health care inflation to be uncontrollable because it resulted from general inflation (32%), the aging of the population (5%) and other demographic factors (13%). There is really nothing that we can do about any of these factors.

The good news is that Lewin researchers found that 49% of health care cost increases resulted from excess utilization of medical resources (19%) and excess medical inflation (30%), which is inflation in medical services that goes beyond normal inflation.

That means that we have a real opportunity to make significant inroads against health care inflation by introducing new programs and concepts that reduce medical inflation and excess use of health care resources.

Much of the innovation in health insurance recently has been directed at least in part at one or both of these two challenges. Some examples:
• Pill-splitting, mail order pharmacies and use of generic drugs all work against inflation in drug prices.

• Disease management programs ensure that patients get the right care they need.

• Closed networks bring down the cost of medical care.

• The high deductible-health savings account (HSA) combination tends to create consumers who are more savvy about and involved with their health care decisions.

But there is so much more that we can do to reduce the impact of excess medical inflation and excess utilization on health care costs. For example, I’ve mentioned several times that we wrote two white papers last year in which we proposed a number of very doable innovations that would cut over $500 billion in health care costs over the next 10 years without sacrificing any quality of care whatsoever. Now that would take a big chunk out of health care cost inflation.


  1. I wonder how much of the medical inflation (30%) is due to insurance inflation.

    I would surmise that health savvy high deductible health savings account consumers are among the better educated and wealthier minority of health care consumers or would be consumers.

    Wouldn't a single payer system that allowed individuals to circumvent the requirement to buy private health insurance afford the greatest savings in these areas?

    The idea that the American people cannot insure themselves because they have to pay some intermediate for-profit concern seems like piracy, doesn't it?

  2. Really great post! Great to hear what's going on in PA on health care!