Healthcare's $363B in 'Hidden Costs' Detailed

Consumers are spending $363 billion -- 14.7% more -- on healthcare than what is conventionally cited in government accounts when unreported costs such as unpaid supervisory care from friends and relatives are factored in, according to a study from the Deloitte Center for Health Solutions. 

This unreported spending identified in the Deloitte report, The Hidden Costs of U.S. Health Care for Consumers: A Comprehensive Analysis  falls outside of traditionally counted healthcare costs such as doctors, prescriptions, hospitals, and health insurance coverage. Those additional costs identified by Deloitte bump consumer discretionary spending on healthcare from 16.2%, for items traditionally reported by the government, to 19.9%. That makes healthcare spending the largest single household budget item, surpassing housing and utility costs at 18.8%.

“There are two important takeaways from this report,” Paul Keckley, executive director, Deloitte Center for Health Solutions, told HealthLeaders Media. “One is that we have to define healthcare more broadly than doctors, hospitals, prescription drugs, and insurance. We have to define it the way consumers define it. When they are buying an over-the-counter remedy it could be instead of going to a doctor or a hospital.”

“Second, we have to tackle this question of supervisory care, of the lost wages that people are now bearing to take care of medical problems for family members,” he said.

Fifty-five percent in the unreported costs -- $199 billion – identified by Deloitte, were for the estimated value of supervisory care, or care given by unpaid relatives and friends, almost all of which was provided to people living in lower income families. Keckley called the estimate, based on lost wages of $12.60 an hour “very conservative.” The $199 billion also does not reflect the loss of sales and income taxes that would have otherwise been paid, he said.

The other $164 billion in expenditures includes:

• 15% for “functional foods” and other nutritional products, and vitamin and mineral supplements;
• 8% for complementary and alternative medicine services and products
• 8% for mental health services
• 6% for blood banks and health promotion programs
• 4% for homes for the elderly
• 3% for ambulance services

“This is hitting the pocketbook because these are part of the household budget,” Keckley says. “These are not touching insurance programs. The significance of the study is not just the $363 billion, which is a big deal, but that healthcare is now the No. 1 category of expenditures in discretionary spending in the household. It’s above housing costs. You can envision that certain households are having to make everyday decisions about forgoing other things like travel or even food because you have increasing number of dollars going to healthcare.”

Individuals living in families earning less than $10,000 per year accounted for 11% of all healthcare costs in 2009. The shares for families earning $10,000-$25,000, $25,000-$50,000, and $50,000-$100,000 were 21%, 25%, and 26%, respectively. The study also noted that:

• Total U.S. healthcare expenditures in 2009 were an estimated $2.83 trillion --a 26% increase from $2.25 trillion in 2005.
• U.S. healthcare spending is dominated by big ticket, “necessary expenditure” items of hospital care ($760 billion, or 27% of total expenditures), professional care ($832 billion, or 29%), and prescription drugs ($246.3 billion, or 9%).
• Total discretionary costs for direct and indirect healthcare totaled $1,892 per capita in 2009.
• One-person family units comprised 24% of total healthcare expenditures, with two-person families accounting for 37%.
• Healthcare costs for people 65+ made up 36% of the total ($1.01 trillion). Senior healthcare use concentrates on hospitals, long-term care, supervisory care, and physicians/clinical services.

Keckley says healthcare costs are “feeding on themselves” and growing so quickly that they threaten other vital areas of the economy. “Over 40 years there has been an average [annual] 4.9% increase. Not too many people have seen their wages grow at that level,” he said. “The more impact that healthcare has over the pocketbook, it is clear the economy doesn’t recover as fast. Seventy percent of the economy is built on consumer consumption. If more and more dollars are not spent in retail or travel or in various manufactured items, then the economy doesn’t recover the way people anticipate.”

“It is a conundrum. You have an industry that is a big part of the economy, almost 18%. It creates a lot of jobs. But if more and more of the economy is dependent upon healthcare to make itself affordable, then you’ve put it in conflict with itself,” he said.

To help decelerate healthcare costs, Keckley said, the public must change from passive patients to smart consumers. He said the healthcare reforms enacted last year provide consumers with tools that enhance transparency, rate physician and hospital quality, help select health plans, and explain treatment options and costs. “But you still run up against the question of ‘what is going to motivate a consumer to make better choices?’” he says. “That is probably the big hanging chad here. We don’t see that in the near-term. It is part of healthcare’s biggest challenge -- a transition from a patient-orientation to a consumer market. That is an industry challenge, a government challenge. It is also a personal challenge.”

And that challenge could prove daunting. Keckley says surveys have shown that consumers prefer to have their healthcare decisions made by doctors or others. “It may point back at the lack of will on the part of Americans to really be engaged in their own healthcare,” he says. “It may be easier to say ‘the system is not working than’ it is to say ‘and we are part of the problem.’”

The report may be viewed here.