COVID drop in health costs won’t last

Businesses and their employees took an assortment of body blows to their finances in the year after COVID struck in early 2020, but there was one surprising offset to those losses: a sharp reduction in health care costs.

People decided to stay away from hospitals because of the infectious COVID patients who were being treated there. Employees took a pass on tests, electives surgeries, and even necessary procedures. Costs plummeted. Companies saw decreases in medical spending by as much as 30%.

The Milliman Consulting Company said its medical index on national health costs dropped for the first time ever. High inflation has been rampant for decades in the Medical Industrial Complex (MIC).

The decades-long pattern of unmitigated inflation has been hitting employees even harder than their employers, because their employers are asking them to take an increasing percentage of the rising costs. The Kaiser Foundation put the total costs of employee health care at $15,500 per employee for this year, with employees picking up $4650, or 30% of the total. For years the rule of thumb was a 75% – 25% split.

The COVID-induced reduction in costs in 2020 and early 2021 was sharper than anyone expected. But it is expected to rebound in the second half of 2021 and 2022 as Americans tend to deferred procedures and tests. That’s a good thing because illnesses caught early are far less expensive than those that go undetected and grow more severe with time.

The companies with best practices have managed their costs to about $10,000 per employee in the COVID year, about one third less of where Kaiser puts the national per employee average.

Those companies have smartened up by using such methods as on-site clinics that deliver proactive primary care; by purchasing complicated treatments at centers of excellence that provide high quality and low fixed costs; and by helping their employees manage their chronic illnesses like diabetes.

The mutual aim is to keep employees and their families out of expensive and dangerous hospitals. The COVID crisis showed how much hospitalizations drive costs.

Businesses are far from out of the woods, though, on the health costs hyper-inflation. Projections for cost increases for the rest of 2021 and 2022 range from increases of 5% to 8%. That could be called a return to hyper-inflation.

Note that all the political attempts to get costs under control have not worked on a large scale basis. Mostly the political answer to rising costs has been to throw more money at the bloated bills.

Self-insured companies have figured out part of the puzzle by encouraging their people to take care of the health of their families in a pro-active way and by creating tools to allow them to become better consumers of health care. Together they have flattened the curve on inflation, but have not dented the unending price increases sought by the health care industry.

The most challenging part of the price picture is the godawful price of new drugs. We buy two different drugs at Serigraph that cost more than $20,000 per month. We operate in a tough, competitive industry and simply can’t afford hits of a quarter of a million dollars per year. We are desperately looking for answers.

Looking down the road, it’s only going to get worse. Gene and cell therapies are yielding new drugs that are effective against previously incurable diseases. One prominent example is Zolgensma, a gene therapy that treats a rare neuromuscular disorder in children. It made a splash in the news as the most expensive drug in history at $2.1 million for a single course of treatment.

There is no way that companies can pay those prices and stay in business. Hospitals are starting to reject the use of those new drugs, even if they work.

There is a limit to how much companies can afford. Self-insured companies will have to refuse to offer such drugs as part of their health plans.

What good are these breakthroughs if companies and their employees cannot afford to buy them?

Meanwhile, companies are welcoming the one-year reduction in their health care bills.

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