Right now the US is experiencing a period of modest increases in health spending, the lowest growth levels in 52 years according to a NY Times article. Click here to read the full article.
This is absolutely normal in times of recession, but the cost growth rate will come zooming back if the recession abates. A chart in the linked NY Times article illustrates that.
This is happening everywhere in most every plan.
Why does health spending abate in recession times of recession? One reason is workers defer elective surgery when they fear they’ll be be a victim of the next 10% staff reduction.
A phenomenon is that benefit managers tend to give credit for the slowdown in health care spending to whatever they’ve done lately. (Hey, we’re all humans, right?) I dub this benefit management “false positives.”
Here’s what I’m hearing about this go round. “My company’s health costs are flattening out because”:
- We added wellness, or deleted it
- We added disease management, or deleted it
- We did special communications to members
- We had health fairs
- We changed consultants, brokers, TPAs, etc.
- We did a “buy right” campaign
- We raised awareness of health costs
- We did (something too laughable to print here)
- We did none of the above
I just hope this temporary slowdown doesn’t let benefit managers become complacent. The star benefit managers out there know better.
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Tom Emerick
Coming soon: Cracking Health Costs, the book, to be published by John Wiley & Sons. The authors are myself and Al Lewis. Click here to pre-reserve at a deeply discounted price.
Tom Emerick is the President of Emerick Consulting, LLC, and Partner and Chief Strategy Officer with Laurus Strategies, a Chicago-based consulting firm, and cofounder of Edison Health. Prior to starting his consulting career, Tom was with Walmart Stores, where his last position was Vice President, Global Benefit Design, which involved designing and managing benefits for over 1.3 million employees in the U.S., and 300,000 plus in international. For about six years, Tom also headed up Walmart’s Six Sigma and process improvement initiatives. Prior to Walmart, Tom had positions with Burger King Corporation, British Petroleum, and American Fidelity Assurance Company. In 2009, Tom was named by Healthspottr as one of the top 100 innovators in healthcare the US for his work on medical ethics. In December 2012, Tom was listed in Forbes.com as one of 13 unsung heroes changing healthcare forever.
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Tom, I think benefit managers are trying to do something good, but they are staring into a black hole and are just frozen in time. The recent story in Dallas about some prominent firms that have drunk the koolaid with a program that combines wellness, prevention, early diagnosis and early treatment is just sad.
I would argue with your statement about health costs declining in recessions My recollection of the early 80′s was trends used by carriers of 24%. In fact great West tried to sell a plan with no rate guarantee whatsover, Wy pay all that up front? It failed to catch on. I rememebr similar trends in1990 an1991 were being used. It wasn’t until 94-96 that inflation in premiums abated.
I think recession has little to do with it.
Thanks for reading CHC.
If you look a the chart in the attachment this article linked to you can’t fail to see the link between recessions and declining trend.
Tom
Sorry, still don’t see it 24% annual trend was the trend factor in the early 80′s in 85-86 it dropped down to about 12-15% and went back up to in 18% area after that and again to to 24% in early 90-91. In 94-96 there was very little trend, but it had nothing to do with the recession. There were mass changes in the market place, carriers were implementing utilization management and PPO’s in the 8 mid 80′s PHCS got moving in Illinois in late 86. In the early 90′s it was the transition to HMO’s which caused the drop in rates, many carriers had long contracts up to 5 years. I’ve been an underwriter sice the 60′s. Heck they used to refer to this as the Underwriting cycle, not the recession cycle. In fact an Actuary at Humana, used to blame it on elections, he thought that if tthe Dems were getting close, that costs would come down
Thanks for your comments Donald. The correlations i see are quite strong. But there are always other factors which you’ve done a good job of pointing out. tom
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