The High Cost Of IT In Health Care
As year's end comes, finance executives are reflecting on their goals while stressing over next year's forecast. In the health care industry, this is true whether you work for a hospital or a medical group. Each year, costs grow while reimbursement contracts fail to keep up. And while those of us in the industry understand the dangers of cost cutting, we must go through with the process or lose margin. So you review your profit and loss statement to prioritize your liabilities, being hyper focused on your organization's financial strategy.
Across all industries, leaders can be certain of one thing: that costs for staffing, health care and technology will increase. Some cost increases are more extreme than others, such as when Microsoft retired Windows XP and companies that wanted to run Windows 10 had to buy new machines.
In speaking with providers after major technological changes, I've learned how they often need to take advantage of lines of credit or even take out loans to afford new tools. Doctors tell me they just want to treat their patients and not have to be an IT guy. I personally know providers who sold their practice to a much larger group, hospital or insurance company in an effort to focus more on patients and get a guaranteed income in a production-based system. The hardest thing I hear are those same doctors and surgeons tell their children not to get into health care.
As technology improves, health care staff feel increased pressure to use it. From patients reading something on the internet to government incentive programs, health care leaders have no choice but to succumb to the pressure. A great example of this is electronic health records (EHRs). The variance in EHR costs goes from free to millions of dollars depending on the product and level of deployment. As with all software, functionality and level of automation will also change depending on cost.
This risk requires an organization to perform an analysis to decide which option would work best, even though there is no perfect application. Such analyses take time and are not performed by minimum-wage employees but rather by top decision-makers who sit through countless demos. This adds to the hidden costs of technology that people often don't consider. What many patients may not realize is that private groups often do not get the option to choose their EHR; they are forced by local hospital groups and Accountable Care Organizations to switch to a specific EHR or risk losing patient referrals.
Health care spending as a percent of GDP is forecast to increase, but is this for the benefit of patients? A 2016 article cited cost as one of the biggest barriers to widespread adoption of EHRs. The authors explain that all the costs, from system implementation to upgrades and maintenance, fall on the provider, while 89% of the financial benefit of the system goes to the health care payer. To put this in perspective, they cite the example of a five-physician medical group, which would pay an average of $162,000 to implement an EHR system and then roughly $85,000 per year in maintenance and upgrades.
Pricing transparency is not going to help this as I expect these annual costs will increase but not in line with reimbursement schedules. Doctors and surgeons will begin costly negotiations with each individual network to work out future payment models. As they negotiate better contracts so that they can afford to do business, this will in turn raise patients' health care costs. And while the government will continue to debate health care spending, their intervention does not always translate into better outcomes for patients.
As health care leaders meet with their fellow department heads to plan next year's budget, they will continue to challenge themselves to manage these growing costs. A big part of that is brainstorming ways to do more with less.
Providers should look at the work being performed as well as the individual's capacity to do that work. If the provider is overwhelmed, what support staff can assist? Providers can also do a comparative analysis of their highest expenses that involves bringing in numerous vendors, watching their demos and deciding whether the savings are worth the effort. We looked at our health insurance costs and changed the focus from the plans to the brokers and found an immediate 16% savings on our premiums. Comparative analysis is equally important with IT functions regarding services and prices. This is due to the large variance in costs among different vendors. For instance, some offices may only succeed with a full office platform. Others may not need that much functionality and could see significant savings with a trimmed-down alternative.
Most importantly, cost cutting is a collaborative process among departments, where each should share in a safe place the efforts they've made. This builds a platform for a collaborative discussion where individuals are working to trim expenses to further the company's success. Former Intel leader Andy Grove said it best: "Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them."
As the saying goes, "Necessity is the mother of invention," and higher costs force the health care industry to become more efficient. I just hope that as finance departments review their budgets, they try not to compromise where it matters most.
Debt, Crowdfunding, Or Death: America’s Very Broken Healthcare System
The United States is the only industrialized nation in the world without universal healthcare. Instead, Americans are forced to rely on a mixture of profit and nonprofit private and public healthcare insurers and providers. The United States federal government provides healthcare coverage through Medicare to individuals ages 65 years and older, and to some individuals with disabilities, military veterans, and children through Medicaid and the Children’s Health Insurance Program (CHIP).
Around 26 million Americans, about 8% of the population, including just under 2% of children, have no health insurance coverage at all. Low-income families are more likely to be uninsured, with the high cost of health insurance cited as the main factor as to why people remain uninsured in the US. The lack of coverage significantly worsens Americans’ access to health care and many face unaffordable out-of-pocket medical bills if they do seek care.
A study published in 2019 found 530,000 bankruptcies filed by individuals every year are due, at least in part, to medical debt.
A 2009 study by Harvard Medical researchers found that 45,000 Americans die every year directly as a result of not having health insurance. 13% of Americans, about 34 million people, reported in a 2019 Gallup poll that they had a friend or family member pass away prematurely after being unable to afford medical care.
The uninsured rate has declined since the COVID-19 pandemic as a Federal Public Health Emergency (in place until at least January 2023) has laxed continued enrollment eligibility for individuals with Medicaid. It’s estimated that anywhere from 5.3 million to 14.2 million Americans could lose Medicaid coverage when the federal public health emergency is lifted.
Nearly an additional 50 million Americans are underinsured, as many Americans with health insurance have to pay fees and copays on medical treatment ranging from drug prescriptions to doctor visits, or pay deductibles—out-of-pocket costs that must be reached before a health insurer begins to cover medical costs. A 2018 survey conducted by NORC at the University of Chicago found 57% of Americans have been surprised by a medical bill they initially thought was covered under their health insurance, often due to a doctor being out of their health insurer’s network or a product or test not being covered under their health insurance plan.
Around 155 million non-elderly Americans rely on health insurance coverage provided through their employer, with the average annual premiums in 2021 for employer-sponsored health insurance sitting at $7,739 for single individual coverage and $22,221 for family coverage. On average, 17% of costs for individual coverage and 28% of the costs for family coverage come out of workers’ own income.
When an individual loses their job, they must find new healthcare coverage or sign up for a federal program called the Consolidated Omnibus Budget Reconciliation Act (COBRA), to extend their healthcare plan up to 18 months. However, workers must pay the full costs and an administrative fee to do so, which can be prohibitively expensive. ‘Job lock’ is a term referring to workers feeling compelled to remain in an undesired job for fear of losing income or benefits such as healthcare coverage, and the number of employers offering health insurance coverage has been declining as costs rise for both employers and workers.
Despite the lack of universal healthcare coverage in the US, the country spends significantly more on healthcare related costs than comparable countries. In 2021, the US spent an estimated $12,318 per person on healthcare, the highest per capita compared to other wealthy nations in the Organisation for Economic Co-operation and Development (OECD). Excluding the US, the average for wealthy OECD countries was $5,829 per person, with the UK spending $5,387 per person.
$1,055 per person in the US was spent solely on administrative costs, compared to $97 per person in the UK. A 2019 analysis by the Center for American Progress estimated the US spends $248 billion on excess healthcare administrative costs annually. The significant healthcare spending costs in the US do not translate to better health outcomes; life expectancy in the US in 2021 was 76.1 years and the US ranks behind other wealthy countries in performance metrics for health care outcomes. The US spends less per person on long-term healthcare costs than the average for OECD countries.
Medical costs are the largest contributor to personal debt in the US, surpassing all other debt in collections combined, and hitting individuals in states that have declined to expand Medicaid, people in low-income communities, and Black Americans the hardest.
A 2022 analysis by the Kaiser Family Foundation found 23 million Americans, 1 in 10 US adults, have significant debt from medical expenses, at least $250, owing a total of at least $195 billion in medical bills. Middle-aged adults and Black Americans are most likely to hold some form of medical debt. In a 2022 poll, the Kaiser Family Foundation found that 4 in 10 US adults, or 41%, reported having medical or dental debt, which includes debt owed on credit cards, collection agencies, family, friends, banks, or other lenders. Thousands of Americans are forced to crowdfund for assistance with high medical bills and costs related to debilitating illnesses such as cancer. The online fundraising organization GoFundMe claims over 250,000 fundraisers started by individuals or organizations are started every year, raising more than $650 million per year. The majority of crowdfunding campaigns for medical expenses fail, with research showing almost 90% do not reach the set goals and only half reach 25%of the set fundraising goal, and campaigns in the highest income ZIP codes raised significantly more funds.
Americans pay higher prices for prescription drugs than any other country in the world, at rates 2.5 times as high as prices in similar-income nations. According to a poll conducted by the Kaiser Family Foundation in February 2019, 24% of adults and 23% of senior citizens reported difficulty in affording their prescription medications. A Gallup poll published in November 2019 reported 22.9% of Americans could not afford their prescription medications at least once over the past year. The discrepancies of prescription drug prices are so high, Americans who live near the borders of Canada or Mexico frequently take trips over the border just to buy prescription drugs because the savings for the same exact drugs are so substantial. These high costs often result in Americans filing for bankruptcy due to the burden of medical debt. A study published in 2019 found 530,000 bankruptcies filed by individuals every year are due, at least in part, to medical debt.
As debt for individuals continues to pile up, hospitals go out of their way to collect, even suing families for payment. A recent investigation by Kaiser Health News of more than 500 different hospitals in the US found at least two-thirds of hospitals sue patients over medical bills, including legal actions such as garnishing wages or placing liens on their property. A quarter of hospitals sell patients’ debts to debt collectors and about 1 in 5 hospitals deny non-emergency medical care to patients over past-due medical debt.
Medical costs are the largest contributor to personal debt in the US, surpassing all other debt in collections combined, and hitting individuals in states that have declined to expand Medicaid, people in low-income communities, and Black Americans the hardest.
In many cases, Americans either ration medication or delay medical treatment because of the high costs. For example, an estimated 1.3 million out of the 8.4 million Americans who rely on injections of insulin to control their diabetes were forced to ration their medication due to the exorbitantly high prices set by pharmaceutical companies. Numerous stories have been reported in the media in recent years of families losing loved ones after they were forced to ration insulin because they couldn’t afford to keep up with the costs of it.
All of the harrowing statistics, economics, and moral failings of the American healthcare system provide numerous reasons for why the US needs universal healthcare.
Additionally, a poll conducted by Gallup in 2019 found 25% of Americans reported they or a family member delayed treatment for a serious medical condition due to the potential high cost, and an additional 8% said they or a family member delayed medical treatment for a less serious condition due to cost.
Further compounding the problem, the US also does not mandate paid sick or family leave, while nearly all other industrialized nations do so. Over 33 million American workers do not have a single paid sick day.
Numerous news reports in the US in recent years have exposed harrowing instances of exorbitant medical bills, costs, and unethical business practices rampant in the US healthcare industry. During the COVID-19 pandemic, several individuals faced thousands of dollars in medical bills for treatment, despite legislative efforts to mitigate or eliminate costs for COVID-19 care. A 2022 Gallup poll found 1 in 3 Americans ages 50 and older have forgone food to be able to pay for healthcare; 37% of Americans ages 65 and older who qualify for Medicare and 45% of adults ages 50-64 reported concern they would not be able to afford needed healthcare services in the next year.
US health insurers reported record profits shortly after the onset of the pandemic and the largest US health providers have reported billions of dollars in profits, while healthcare workers have reported brutal working conditions during COVID-19 outbreaks, deaths of healthcare workers, and understaffing. A 2022 study authored by a researcher at the Yale School of Public Health estimated that universal healthcare in the US would have saved more than 338,000 lives and $105 billion in healthcare costs during the COVID-19 pandemic. The United States surpassed 1 million reported COVID-19 related deaths in May 2022.
All of the harrowing statistics, economics, and moral failings of the American healthcare system provide numerous reasons for why the US needs universal healthcare. Medical debt shouldn’t exist and the consequences of gatekeeping healthcare through economic barriers continues to have devastating consequences for American communities, families, and individuals, and is detrimental to public health.
This need has been popularized among progressives under calls for Medicare for All, which has received support in polls among Americans by a firm majority across the political spectrum. However, corporations profiteering off the status quo of the current broken healthcare system have stymied this support and need for reforms in Congress, where only 122 Democrats in the House and 15 senators have cosponsored a Medicare for All bill.
Before you go, we want you to know how essential your support is to our work at The Real News Network.Principled, independent journalism that gets to the roots of the crises we face is more important today than ever. Journalism that doesn't just dwell in despair, but empowers you to take action. Journalism that movements and changemakers need to fuel their activism against worker exploitation, the climate catastrophe, white supremacy, and more.
We never accept cash from the corporations we're trying to fight and we never hide our content behind restrictive pay walls. But that means we need you to rush a tax-deductible donation or join our growing community of sustaining members who give a little each month to make a big difference to our journalists and contributors. Solidarity, not charity!
More ways to give...
RelatedHealth Care Cost Basics: What They Are And Ways To Save
Putting aside money for emergencies, like replacing a roof or a major car repair, is one of the age-old mantras of personal finance.
But today there’s one major potential expense that, until relatively recently, few working people rarely thought about: Paying for out-of-pocket medical costs.
Why? Because until the past decade or so, most employer health care plans covered the majority of employees’ medical costs.
Subscribe to Kiplinger’s Personal FinanceBe a smarter, better informed investor.
Save up to 74%
Sign up for Kiplinger’s Free E-NewslettersProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Not anymore.
The spiraling cost of health care has resulted in many employers shifting more of these expenses to employees. Monthly premiums for traditional health care plans that used to be fairly reasonable now may cost $600 per month or more. And most of these plans have annual deductibles — money you must pay out of pocket for medical expenses before the plan takes over most of the costs.
Since most employees can’t afford these plans, many companies now also offer high-deductible health plans (HDHPs). How pervasive are these plans? In 2019 51% of all U.S. Employees were enrolled in HDHPs.
And for those who aren’t covered at work and have to purchase their own health insurance, HDHPs generally offer the lowest premiums of plans available in state and Affordable Care Act insurance marketplaces.
However, someday — maybe a few years from now, maybe next week — you will need medical treatment for an injury or a major illness. If you’re not financially prepared, you may discover the hard way what “high-deductible” really means.
Three kinds of expensesDeductibles
Your HDHP may state that it has a $4,000 annual deductible. That means you’ll have to use $4,000 of your own money to pay for medical treatments before the plan starts covering some of the costs. If you don’t believe you’ll have to pay that much, think again. In 2018, the average cost (opens in new tab) for a knee replacement was $35,000. For spinal fusion, $110,000. Thinking of having a child? It could cost you $4,500 or more (opens in new tab) once all pre-natal care, delivery and post-partum expenses are tabulated.
As a participant in an HDHP, I’ve personally experienced the painful price of health care. Last year I was healthy for most of the year, but the costs for one visit to an out-of-state emergency room and follow-up appointments ate up my entire $2,800 deductible.
Thankfully, my deductible was relatively reasonable, considering that in 2020 the average deductible for individual subscribers was $4,364 and $8,439 for those with family coverage, according to research conducted by eHealth (opens in new tab).
But your expenses may not end when you hit your deductible limit. Many HDHPs require to you to continue to pay partial costs through co-payments and co-insurance.
Co-payments
Co-payments are fixed amounts you pay out of pocket for health care expenses. How much you pay depends on whether you’ve hit the deductible or not. For example, if a procedure costs $500 and your co-payment for such a procedure is $20, you'll pay $20 only if you’ve paid the maximum deductible. Otherwise, you’ll pay the full $500 out of pocket.
Co-insurance
If deductibles and co-pays weren’t enough, co-insurance can add even more to your medical tab. It’s a percentage of covered health care services you may still have to pay on your own even when you’ve maxed out your deductible.
Let’s say your plan has a 25% co-insurance requirement. If you’ve already hit your deductible and then have another procedure that costs $1,000, you’ll still have to pay $250 out of pocket.
When does it end?Fortunately, the IRS sets maximum annual limits for total out-of-pocket medical expenses (opens in new tab) for HDHPs. In 2022, this limit is $7,050 for individuals and $14,100 for families. Any expenses above that level will be fully covered by your HDHP.
But remember — these limits reset every plan year.
Health Savings Accounts to the rescueIf there’s one silver lining in this scenario, it’s that many employers that offer HDHPs also offer Health Savings Accounts (HSAs).
With an HSA, you make pre-tax contributions from your paycheck to an investment account that allows you to withdraw contributions and earnings tax-free to pay for qualified health care expenses.
In addition to medical treatments, you can use your HSA to pay for prescription and over-the-counter drugs, medical equipment, dental expenses, physical therapy and even acupuncture and aromatherapy. You can also use your HSA to help pay for long-term-care insurance premiums.
For 2022, the maximum amount you can contribute is $3,650 per individual ($7,300 per family) with an additional $1,000 in “catch-up” contributions per person for those 55 and older. Some employers also make periodic contributions to their employees’ HSAs to help offset some of these out-of-pocket expenses.
Completely portableThe great thing about HSAs is that you never have to make withdrawals. For example, you may choose to pay your current medical bills from your savings and reserve your HSA money for health care costs during retirement. (Note that once you enroll in Medicare you can no longer contribute to an HSA.)
If you start a new job with an employer that has an HDHP and HSA, you can transfer the assets from your old HSA into the new HSA. If they don’t offer an HSA, you can move assets from your old HSA into one offered by a financial services company. Keep in mind that if you don’t enroll in your new employer’s HDHP (or they don’t have one) you can’t make additional contributions to your HSA.
Having an HSA can help take the sting out of out-of-pocket medical expenses when they occur — but only if you contribute to it.
This may be challenging if you’re also trying to save for retirement, your children’s higher education or a new home. But considering that the pre-tax contributions you make to your HSA have the same taxable-income-lowering benefits as contributing on a 401(k) account, there are advantages to contributing as much as you can to both accounts.
If you’re fortunate enough to receive a tax refund, consider contributing some of it to your HSA. Even though these contributions are after-tax, they may be deductible. If you’re planning on doing this, make sure that your combined pre-tax and after-tax contributions don’t exceed the annual limit.
Other ways to lower health care expensesThis may sound like a tough-love situation, but the fewer family members covered by your plan the lower your premiums and out-of-pocket expenses may be. If your adult children are covered by your HDHP but work for a company that offers its own health care plan, it might be time to encourage them to experience the “joys” of managing their own health care expenses. They’ll have to do it anyway, since at some point they’ll be too old to be covered by your plan (generally age 26, but higher in a few states).
If you and your spouse both have HDHPs at work, compare the monthly premiums, deductibles, co-pays, co-insurance and maximum out-of-pocket expenses for each option. If both options let your use your current primary care physicians and specialists, you may both want to switch to the more potentially affordable option.
And if you’re thinking of having a procedure done, you may also want to estimate total costs (opens in new tab) in your area.
It’s unfortunate that people may need to add “future health care costs” to their list of savings goals, but this is a reality that many will have to plan for. If you need help figuring out how to balance these competing priorities, a qualified financial planner can provide guidance to help you make sure that staying healthy doesn’t significantly harm your financial well-being.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
