A family friend recently passed away after living with chronic health conditions over the past 5-10 years. His attending physician recommended that his leg be amputated due to an infection that was putting his life at risk. His wife made the decision to proceed with the surgery. Due to his overall health status, he had significant surgical complications resulting in an extended facility stay where he eventually died. At age 93, it may not have been in his best interest to have this complex surgery, as his quality of life was going to be problematic even if he had survived the procedure. The emotional trauma on this patient and his wife (age 89) was significant following the surgery, and each of us paid for a very expensive surgical procedure and follow-up care. From a personal experience, the end-of-life topic is not an easy discussion, but it is one that must occur.

As we read the various articles on the recently released 2016 Medicare Trustee Report, the findings should not be a surprise to anyone. In reviewing the Report, here are the stats that were most interesting to me:

  • 55.3 million covered individuals
  • Total expenditures: $647.6 billion (up from $618.7 billion in 2014), with incoming total revenue at $644.4 billion
  • Average spending growth rate at 5.8% per year for 2015-2025—exceeding the average growth rate in GDP by 1.3%. The result: healthcare projected at 20.1% of GDP by 2025
  • Hospital Insurance Trust Fund will be out of money in 2028, two years earlier than forecasted in last year’s report
  • By 2025, 47% of health spending will be funded by federal, state, and local governments, while businesses and households will fund the other 53%—a 3% shift from 2014

When you factor in the 2015 Medicare results with the 2014 National Healthcare Expenditures, the financials are somewhat daunting; Medicaid spending increased by 11% to $495.8 billion while private health insurance grew to $991 billion.

 

The tsunami is upon us

The numbers confirm that the tsunami is upon us, and with Medicare projected to cover 80 million lives in the next two decades, the financial burden will only intensify.

The Board’s report stated that Congress and the executive branch must work with a sense of urgency to address these challenges.

How can the free market make an immediate impact in healthcare expenses today? Pasternak’s study in 2013 showed that 28% of Medicare’s costs are spent during the last six months of a patient’s life. And 53% of seniors die in a facility when the vast majority prefer to die in their home surrounded by family. I suspect that the under 65 population has similar statistics. How do we recognize the health systems and physicians discussing palliative and end-of-life care options with patients and their families so that their competitors emulate their more appropriate and respectful process of care?

The alternative? We continue on this path to financial insolvency. In a Health Affairs article titled, Health Spending Growth: Still Facing A Triangle Of Painful Choices, by 2026, the Federal government is projected to be faced with a total increase in annual outlays of $977 billion for health and other expenses, such as defense, education, transportation, and so forth. Of the $977B increase, 57% is projected to be driven by health spending—$557 billion. The author provided some basic alternatives to cover this additional liability, assuming health spending growth at GDP+0. Again, CMS is projecting health spending to be at GDP+1.3, which means these options are understated.

  • Raise taxes by 4% (relative to their historic high), and cut spending on defense and other non-health by 35% (relative to their historic low)
  • Raise taxes by 9%, and cut defense and other non-health by 24%
  • Raise taxes by 15%, and cut defense and other non-health by 12%
  • Raise taxes by 20%, and keep spending on defense and other non-health at their historic lows

 

A sense of urgency

These options should result in some interesting political discussions. The employer can expect to discuss difficult choices in the Boardroom—limit salary increases, layoffs, and/or raise the price of goods.

How are employers expected to compete globally with the added healthcare expense? While there are numerous articles that reference the 30% waste in healthcare, how do we achieve this $1 trillion of expense reduction? Who are the healthcare suppliers embracing palliative care treatment, and which ones are committed to removing the non-value added waste from their process of care? When will employers take the reins to work with the healthcare suppliers to engage in a more collaborative purchaser/supplier relationship, so quality, safety, and cost are the marketing message received in the market and the employee population?

The numbers have been documented. The Medicare Trustees stated a clear message—we must act with a sense of urgency to address these financial challenges. Are you ready to take meaningful action?

David Toomey
David Toomey is a senior healthcare executive with 30+ years of expertise in addressing the fragmentation within the healthcare system. His experience includes revenue/P&L management and business development, with products ranging from digital health, transparency, wellness, performance networks, medical cost management, and clinical management programs. David is a Senior Vice President with Sharecare’s Enterprise division. Sharecare, created by Jeff Arnold (founder of WebMD) and Dr. Mehmet Oz, provides a health platform to bring all healthcare communications, content, and coaching for individuals, which improves their RealAge. Prior to Sharecare, he was the Chief Revenue Officer of Compass Professional Health Services, a rapidly growing, technology-enabled firm that works with employers to impact their population’s health and to lower their overall healthcare costs.

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