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2022 Brings Cost Increases in Health Insurance of All Types

In the case of Medicare, a 15% increase in the Part B premium is large by any measure. For lower income brackets, this can wipe out the 5.9% COLA increase in any Social Security payments. For people in those brackets, it makes inflation from all other sources more painful. It is deducted from their payments prior to disbursement, so some may see a decrease in their monthly checks. There is some pain at high income levels too. Roughly 7% will pay up to and additional $408 per month, and double that for a couple. Medicare Drug plan costs are also escalating, and the choices are shrinking as that sector consolidates. Four companies control eighty percent of enrollees, and there are 23% fewer choices in just the past year. Each acquisition takes as many as 3 plans out of each State’s market and decreases competition. There are some bright spots. Biogen halved the annual cost of its new Alzheimer’s drug to $28,200 in the face broad rejection of its initial price. But even at the reduced price, the cost for 1.5 million candidates would add over $42 billion to drug costs.

These are among the most obvious increases. Less apparent are Employer and ACA Costs.

An October Towers Watson survey indicated US employers expected a 5% cost increase.  Estimates now, after open enrollment information was available, are that employer plans globally will go 8.1%. In the US, the estimate is 7.6% (lower in Europe at 6.7% and higher in Latin America at 14.2% reflecting the timing of Covid spikes regionally). Early in Covid, people postponed testing, treatments, and elective operations. That offset Covid costs in the short term, but also increased pent up demand.

The average ACA plan went up by 3.5% for 2022, but that obscures more than it reveals. (It is a national average of all plans, not weighted by state, plan, or age group.) The key factor for most is the cost of the reference plan, the second lowest silver plan. It determines the value of the available tax credits. That has consequences for most participants.  A high-cost reference plan can raise the tax credit to a point where a gold plan in the same market is free. Conversely, a new low-cost entrant that displaces a reference plan can cut the value of tax credit for everyone in that market.

Many of these increases were predictable in the face of all that has transpired with Covid.

However, the structure of our medical delivery systems had already created upward pressures on medical costs for decades before that.  The size of the increases this year may trigger even more scrutiny and questions of medical costs in the US. Specifically, why are they higher than any other developed country, and why do we allocate our health and care resources so poorly?

The share of GDP consumed by medical care approaches, and may soon cross 20%, higher than other developed countries. This excludes the unpaid custodial care costs that if recognized and fully allocated would drive that percentage significantly higher.  Yet the quality of our population’s health is at the bottom of OECD countries. In the US lifespans were dropping before Covid and that only accelerated with Covid.  The driver then was the opioid epidemic, now it is the Covid pandemic, and next will be the diabetes epidemic. A growing sick population also means more time spent on unpaid non-medical dependent care.  Those are compounded by a birth rate that has fallen for 6 years to a 40+ year low, and another drop expected in 2021.

Together these demographics will negatively impact our health delivery system for the foreseeable future. They are ravaging the front-line medical delivery system, burning out doctors, nurses, and staff across the entire industry. The same is true of the paid caregiving industry, with an added hurdle. Well before Covid, that sector was highly dependent on foreign labor for its frontline caregivers. 

The “great retirement’ is accelerating workforce shrinkage, and an end to Covid may accelerate that further. The sources to replenish that work force are unclear.  The allures are tarnished or gone. Education has been interrupted at all levels. The is a shrinking pool to draw from and a growing wave of baby boomers cresting 75.

Reorienting from a “fix it when it breaks” to a “prevent from breaking” culture takes generation(s). Simplifying a fragmented delivery system and making its costs and quality transparent takes arduous work, carrots, and sticks applied firmly over decades.  Removing the layers of administration and obscure price/profit negotiations across the medical, pharma, insurance silos will take as long as it did to put them in place.

Financial service firms and advisors who recognize the nature and scope of the health and care issues their customers and clients face can do (at least) two things:

1) Provide better financial advice and counsel to clients and customers and recognize that growing wealth is not their end game. It’s just table stakes, a first step, to assure security for themselves and their families

2) Recognize, just as Microsoft and Amazon have the digital skills that medicine needs to bridge its technology gaps, the financial service industry has the financial counseling skills to help patients bridge the funding gaps.

Both are learning how complex and expensive those gaps are. Some capitalizing successfully on the opportunity (Microsoft). Others try, initially fail (Haven), but learn from it (Amazon).

Still others don’t try, and instead let that value be added by their competition.

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