Healthcare costs continue to rise faster than the economy. This trend is affecting the ability of employers to provide their employees with health insurance.
Employers seeking to control cost growth have increased employee contributions, expanded cost-sharing provisions and restrained benefit levels. However, these efforts do not appear to reduce utilization or the underlying rate of increase.
Medical Inflation
The prices of medical supplies, prescription drugs and healthcare workers have increased significantly over the last few years. This is known as medical inflation, directly impacting the cost of healthcare premiums and out-of-pocket medical expenses. This is one of the reasons why healthcare costs are rising for employers.
These costs are driven by introducing new and improved treatments, equipment and technology. These innovations can improve a patient’s health outcomes but come with a high price tag for doctors and hospitals. As a result, these costs are passed on to patients and insurers.
The increase in chronic conditions, such as cancer, cardiovascular disease and musculoskeletal injuries, also drives medical inflation. The COVID-19 pandemic exacerbated the latter, with remote working models and sedentary lifestyles leading to higher incidences of back pain and other musculoskeletal problems.
Changes in the Healthcare Marketplace
The decades-old law in Hawaii requiring employers to offer health insurance has brought something less than universal coverage. It initially led to a significant decline in Hawaii residents without insurance. Still, now the state has more uninsured workers than most other states, and businesses have found ways to skirt the law by hiring employees on part-time contracts.
In a well-functioning market, prices for similar goods should remain relatively high within the same geographic area, but this is not true for healthcare. The high prices in the United States are largely due to rents – payments to providers that go beyond their normal rate of profit – and problems in the distribution of risk between insurers and patients.
The price increases are also driven by the fact that many healthcare service costs are covered by multi-year pricing contracts between payers and providers, including hospital groups and drug manufacturers. This means that underlying inflation in the cost of labor and production does not immediately get reflected in prices but rather over several years as these contracts expire.
Health Care Reform
Hawaii’s healthcare costs are lower than the national average, and the state’s residents enjoy some of the best health in the nation. However, the state needs to improve in some areas, such as reducing preventable hospital use and promoting better access to primary care. According to the 2022 Scorecard on State Health System Performance, Hawaii ranks first in the country for overall health system performance and second for avoidable hospital use.
The state also scores well in affordable healthcare, quality and equity. Despite this, some residents lack access to basic health services. The form must ensure that all residents have adequate health coverage and can navigate the health system effectively. Governor David Ige signed a bill that ensures certain Obama-era measures will be preserved if federal lawmakers repeal the Affordable Care Act (ACA).
This includes allowing young adults to stay on their parent’s insurance and prohibiting health insurance companies from denying coverage for preexisting conditions. In addition, the state is trying to address other social determinants of health, such as homelessness.
Increased Preventative Care
As the Dutch philosopher Desiderius Erasmus said, “Prevention is better than cure.” While many people may think that they are healthy enough to avoid major medical conditions, the truth is that preventive healthcare checks and screenings can detect various health issues at an early stage, when they are much easier to treat.
Regular checkups can also help individuals understand their current health status. The ability to receive health education and advice can empower individuals to make healthy choices that will benefit them in the long run, such as eating a well-balanced diet and exercising regularly. The ACA requires private insurance plans to cover preventive services without cost-sharing.
This includes health care services like general checkups, screenings and vaccines. It also covers services recommended for certain populations, such as mammography and cervical cancer screenings for women. The ACA’s preventive healthcare coverage policy has helped to lower health costs by encouraging more people to take advantage of available services.
However, various factors contribute to differences in healthcare spending across the country, including differences in physician behavior and practice, differences in patient demographics, variations in provider payment models, and other factors that are not directly related to the functioning of healthcare markets.
Increased Healthcare Expenses
The United States spends significantly more on health care as a share of the economy than other large advanced economies. In addition, it is the only major industry in which prices are growing more rapidly than incomes. This phenomenon, known as Baumol’s cost disease, suggests that healthcare faces problems that prevent it from achieving the same productivity gains as other industries.
High prices are the main reason premium contributions and deductibles are a big part of workers’ budgets. In 2020, the potential cost of employee contributions and deductibles topped $8,070 per person on average, ranging from a low of $6,528 in Hawaii to more than $9,000 in Florida, Kansas, Missouri, South Dakota, and Texas.
The most expensive medical services are surgical procedures, diagnostic tests, and prescription drugs. While some of these prices are driven by demand for the services and innovations in how they are delivered, most are not. The price increases for these services are due largely to the high cost of labor and materials, and they are not easily shifted onto consumers.