With an eye toward asking questions not yet posed, and looking beyond current events to frame strategic decisions with long-term consequences, annual studies by the Vizient Research Institute® explore macroeconomic issues facing members on a national scale.

These studies are highly quantitative in nature; for example, the 2016 annual study examined Medicare claims data comparing 209 health systems nationally. Slated for release in early January 2018, the Vizient Research Institute’s 2017 strategic economic research study, Health Care’s Tipping Point: The Risk of Unchecked Spending in a Global Economy, explores the implications of the aging baby boomer generation and the economic risks associated with the current trajectory of health care spending. 

The study dissects the effects of the swell in the Medicare ranks as boomers turn 65 at a rate of 10,000 per day through 2030. As a result, the ratio of active workers per retiree is falling sharply, straining the program’s traditional funding mechanism. At the same time, annual spending by the working population for their own health care has tripled in the last 15 years and will double again over the next 15 years unless interventions slow the rate of increase. 

The 2017 study poses the question, ‘Will health care finally become unaffordable for the middle class?’ “The annual costs for a typical working family of four, which were roughly $9,000 in 2001 and have grown to nearly $26,000 today, include the health insurance premiums (both the portion paid by employers and the portion paid by employees via payroll deductions) plus their out-of-pocket expenditures,” said Tom Robertson, executive director, Vizient Research Institute.

The study’s findings show that, if allowed to continue unchecked, health care spending will reach $50,000 per working household by 2030, an amount completely unaffordable for middle income families. Robertson goes on to ask, “What if we didn’t actually improve the economic lot of the middle class, but just avoided making it worse? Specifically, what if health spending between now and 2030 grew only at the rate of wage increases?” That rate of increase would result in health care spending of about $35,000 instead of $50,000 per household, or 30 percent lower than the current trajectory predicts.

Given the U.S. economy’s reliance on consumer spending as a primary engine of growth, the impact of health care costs on households’ discretionary spending at current levels (let alone at projected 2030 levels), remains an unanswered question with potentially severe implications. In the words of Warren Buffet, “Medical costs [have become] the tapeworm of American economic competitiveness."

Are price controls the answer?

Economists have been warning that health care costs are unsustainable for decades, but as a country, we have always found a way to afford care. However, things have fundamentally changed. We now spend as much on prescription drugs as we spend on all inpatient hospital care. New gene splicing protocols have emerged with $350,000 per-dose costs. The traditional insurance model, where annual policies are purchased through an employer, no longer matches the epidemiology of chronic illness nor the scope and duration of emerging treatments.

“Health care providers have been told that the sky was falling for so long that complacency has set in. But the magnitude of the spending, and the mismatch between insurance models and the underlying nature of chronic disease and its treatment, mean that pieces of the sky may already be coming down around us,” said Robertson.

Even if the provider community were to take the steps necessary to curb avoidable spending, the aggregate savings from reducing unwarranted utilization would only partially close the 30 percent gap between the current trajectory and the $35,000 target for total annual health care costs per working household. Whatever portion of the spending gap that was not eliminated via waste reduction would likely have to come from price controls.

The 2017 study, done in collaboration with consulting actuaries at Milliman, examines commercial insurance claims data to determine the impact of potential price controls under a range of possible scenarios. The study offers important cautions to members against complacency and illustrates what life might look like if price controls became necessary to avoid further eroding of the standard of living for middle class working households in a globally competitive economy. Those controls need not come via a single payer system, though that would be the fastest way. The research describes other ways that price controls may come about.  

Robertson warns that the political divisiveness in Washington is just noise in the big picture for health care. “We are on a collision course with unaffordability; in less than 15 years middle America will simply not be able to afford us. Our study finds that even if we reduced utilization by 10 percent — and there is no reason to think that we will, but even if we did — we would still cost 25 percent more than middle class families could afford by 2030. There is no visible path forward that avoids the need for eventual private sector price controls, in the order of magnitude of 20 to 25 percent.”

For more information about joining a member network and accessing the resources provided by the Vizient Research Institute, contact Cindy White, vice president, methodology and programming for Vizient.

Published: November 30, 2017