Quit Wasting My Healthcare

The Seven Causes of Rising Healthcare Costs that Every CFO, Benefits Manager and Broker Should Know

The average employee health insurance cost for family coverage is $12,106.[i]  That cost–whether it is in insurance premiums or medical claims paid by the employer–increased an average of 6% in 2007 and many employers are facing increases as high as 30% this year.[ii]  To put that cost in perspective, a family with two SUVs may spend $200 a week to fill their gas tanks.  At $4 per gallon, they would spend $10,400 per year on gas—still almost $1,800 LESS than their total spending on healthcare.  Understanding the causes of these out-of-control healthcare costs is vital to CFOs, benefits managers and insurance brokers. 

Doctors Ezekiel Emanuel and Victor Fuchs recently wrote an article in the Journal of the American Medical Association on the root cause of high healthcare costs.[iii]  Their central premise is that escalating healthcare costs are not mainly due to technology or health insurance red-tape, but rather OVERUTILIZATION of healthcare services by doctors and patients.  My blogs over the next several days will address each of the seven causes of overutilization that the authors identified.  For today, let’s start with #1 and #2:

1.        Physician Culture

Doctors are taught in medical school and residency to be aggressive and thorough in their diagnosis and treatment of disease.   Ruling out rare diagnoses with expensive tests is seen as a sign of intelligence.  Any attempt to be more judicious in a diagnostic or treatment plan—such as using medication and physical therapy for acute low back pain rather than ordering a $1,500 MRI of the spine—can be frowned upon by a doctor’s peer group.

2.        Fee-for-service Payment

Doctors know they get paid more to do something than to not do something.  This financial incentive causes doctors to perform procedures when there may be little clinical evidence that the procedure is necessary.  For example, a recent New York Times article describes physicians ordering $1,000 CT scans of the heart to look for blockages in asymptomatic patients when these scans have not been shown to improve patient outcomes.  An economist from Georgetown University said fees from imaging tests, such as CT scans, make up half of the typical $400,000 annual salary that cardiologists make.[iv]  That’s a strong incentive.