Health care spending rises as confidence in ability to pay falls

Practices are devoting more time to collections and helping patients understand their health insurance.

By — Posted May 30, 2011

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At the annual conference of the Illinois affiliate of the Medical Group Management Assn. in May, a speaker asked the audience about the size of the patient deductibles they were seeing. People in attendance yelled out numbers: "$1,000!" "$5,000!" Some even went as high as "$10,000!"

"A lot of times the patient has no choice in the plan that they are given by their employer," said Izzy Goodman, RN, administrator of business affairs with North Suburban Cardiology in Evanston, Ill., and secretary of ILMGMA. "Then when they find out they are responsible for $1,500 or more, they are shocked."

Two recent surveys bear out Goodman's observations. One shows the amount of health care spending by American families going up. The other shows people's confidence in paying for health care going down.

The average annual cost of health care for a family of four covered by a PPO plan grew 7.3%, from $18,074 in 2010 to $19,393 in 2011, according to the 2011 Milliman Medical Index released May 11. The percentage change was slightly less than in previous years, and the total includes the employers' share of costs.

But patients are feeling more of the cost sting: The employee's share of that total grew at a faster rate than the employer's share. Employee out-of-pocket expenses grew 9.2% to $3,280, and the payroll deduction for insurance and related health expenses increased 9.3% to $4,728. The amount of money paid by an employer grew 6%, to $11,385.

"As has been the case in four of the last five years, employees are paying a larger share of the cost increase than their employers," said Scott Weltz, consulting actuary at the medical index.

Wages aren't keeping up with health cost increases. The U.S. Bureau of Labor Statistics reported May 13 that average hourly earnings declined 0.3% from March to April. Earnings declined 1.2% during the past year.

Other data indicate that patients are less confident about their ability to afford care. The Thomson Reuters Consumer Healthcare Sentiment Index, which measures if people postponed, delayed or canceled medical care over the last three months or thought they would do so in the next three, dropped to 95 in April from 98 in January. The baseline is 100.

"Health care costs are still going up, and some patients need to make a choice -- paying out of pocket for health services, paying for rent or paying for food," said Raymond Fabius, MD, chief medical officer for health care and science at Thomson Reuters.

Physicians and medical office staff say the trends of higher costs and less patient confidence to cover them means practices have to put more effort into collections, including working with patients to talk about payments and explaining how their health insurance works.

As further evidence that the share paid by patients continues to rise, a report issued May 18 by the professional services firm PwC found that 17% of employers in 2011 said high-deductible health plans -- the kind whose numbers were being shouted out at the Illinois MGMA meeting -- were their most common benefit design. Only 13% said this in 2010.

The report, which included a survey of 1,700 employers, said 29% had a plan with a deductible of at least $1,000 for in-network care, up from 16% in 2010. For out-of-network care, the percentage of plans was 44% in 2011, up from 22% in 2010.

"A higher proportion of the bill is the patient responsibility now, but patients are not necessarily aware of that," said Dina Strachan, MD, a dermatologist in solo practice in New York. "They don't understand their own insurance. We spend a lot of our time explaining their insurance."

Most practices will work out something with patients who cannot afford care, and many physicians frequently provide unreimbursed services. But to improve collections from patients who can pay -- a growing part of a practice's cash flow -- some are intensifying their efforts to receive any required co-pays before a patient sees a physician. Some practices set up systems that securely keep patient credit card numbers on file so they can be charged when the final balance is clear, or they work with patients to set up payment plans.

Medical practices are trying to manage the growing number of patients who spread out visits and are less likely to come in for minor complaints. When they do come in, the list of medical problems that need to be addressed is longer, and requests for less expensive generic drugs -- even when one doesn't exist for the branded equivalent -- are more frequent.

"We try to get patients to understand that generics work well for some conditions, but there are not always generics available to treat their condition. They are always asking for them," said Wayne Reynolds, DO, a family physician at Sentara Family Medicine in Gloucester, Va.

Patients are expected to continue to struggle paying for care. The PwC report points out that overall health care costs probably will increase 8.5% in 2012, up from 8% in 2011.

The Thomson Reuters report said patients' confidence is low even though people have indicated that they are less likely to delay, cancel or be unable to pay for services during the next three months than they did during the previous three.

But whether or not patients are confident in their ability to pay, they might show up because they are in desperate need of care.

The PwC report states: "Health plans and employers are reporting that they are beginning to notice post-recession stress taking its toll on workers' health as well as medical utilization deferred during the depths of the recession."

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Big cost jumps

Average medical expenses for a family of four covered by a preferred provider plan, including the price of insurance, have more than doubled in a decade. And employees are paying an ever-larger share. Figures include employer contributions.

Year Annual health
care costs
2002 $9,235
2003 $10,168
2004 $11,192
2005 $12,214
2006 $13,382
2007 $14,500
2008 $15,609
2009 $16,771
2010 $18,074
2011 $19,393

Source: 2011 Milliman Medical Index (link)

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Who's paying what

The 2011 average figure of $19,393 to provide health care for a family of four on a preferred provider plan is divided between employer and employee. Employees' contributions are split between payroll deductions and out-of-pocket costs.

Employee out-of-pocket: 17%, or $3,280

Employee payroll contribution: 24%, or $4,728

Employer contribution: 59%, or $11,385

Source: 2011 Milliman Medical Index (link)

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View in PDF

Click to see data in PDF.

Increase in spending split

The employee portion of how much is contributed to the medical expenses of a family of four generally has grown faster than the employer portion. Here are average annual increases:

2007 2008 2009 2010 2011
Total medical cost growth 8.4% 7.6% 7.4% 7.8% 7.3%
Employee out-of-pocket portion 9.5% 10.5% 5.4% 6.6% 9.2%
Employee payroll deduction 12.8% 10.1% 14.7% 8.0% 9.3%
Employer portion 6.5% 6.0% 5.4% 8.0% 6.0%

Source: 2011 Milliman Medical Index (link)

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External links

Consumer Healthcare Sentiment Index, Thomson Reuters (link)

2011 Milliman Medical Index (link)

"Behind the Numbers: Medical Cost Trends for 2012," PwC (full report requires registration) (link)

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