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Revealed: What's Really Driving Up Healthcare Costs

 |  By Margaret@example.com  
   July 25, 2012

Think you know what's driving up healthcare costs?  Hoards of uninsured patients seeking emergency department are? Unconscionable prices charged by pharmaceutical companies? The practice of defensive medicine?

Guess again.

The answer might be lurking in your own home.

According to a report from the Health Care Cost Institute, a Washington, DC-based research group, spending on healthcare costs for commercially insured children under age 18 grew faster than spending for adults from 2007 to 2010. HCCI had access to three billion health insurance claims from Aetna, Humana, and UnitedHealthcare.

Insurers and consumers spent nearly $88 billion on healthcare for children in 2010, up by 12% percent from 2007, according to the HCCI. Spending increased even though the number of children covered by employer-sponsored insurance dropped from 44 million in 2007 to 41.4 million in 2010.

By comparison, healthcare costs for adults increased by 8%.

This is the first time researchers have been able study such a large number of claims from different carriers. The results of the study suggest that controlling healthcare cost over the long term may be tougher than anyone has imagined.

According to the report, healthcare spending on children increased despite a drop in the number of children covered and a drop in the use of expensive healthcare services, such as hospital stays and brand-name drugs.

So, if fewer children used fewer expensive services why has spending increased?

Health plans often cite utilization as a driver of increased healthcare costs, but in this case researchers discovered that regardless of the service category (inpatient or outpatient, professional or pharma) the price of the healthcare services themselves increased faster than either utilization or the intensity of those services.

The report points to a few trends that contribute to this outcome:

  • Inpatient and outpatient utilization is down, so fewer children are being admitted to hospitals or visiting EDs
  • Use of testing facilities has increased and services such as MRIs are more prevalent
  • At every physician visit more tests, consults, and procedures are performed

Over a three-year period between 2007 and 2010, the per capita expenditure for inpatient services increased by 13%, outpatient by 28%, professional services by 16% and prescription drugs by 19%.

By age group, payers and beneficiaries spent the most healthcare dollars on children who were age three and younger and between the ages of 14 to 18 years. Here are some of the study findings for those two age groups:

Children age three and younger:

  • Accounted for 17% of the children studied and 31% of healthcare spending
  • Posted the highest annual per capita spending rate ($3,896)
  • Incurred inpatient services totaling 38% of healthcare spending. For this study the cost of normal deliveries and inpatient perinatal services were evenly divided between mother and baby
  • Incurred outpatient facility services totaling 17% of healthcare spending

Children age 14-18:

  • Accounted for 29% of the children studied and 31% of healthcare spending
  • Posted the second highest annual per capita spending rate ($2,272)
  • Had one of the highest utilization rates of three central nervous system drugs, such as antidepressants, anti-anxiety drugs, and drugs used to treat attention-deficit hyperactivity disorder
  • Posted a 31% increase in spending on prescription drugs

Across all age groups the findings include:

  • Primary care visits, immunizations, and preventive medicines account for the biggest share (40.3%) of children's healthcare spending
  • Outpatient services account for 24% of spending
  • Inpatient admissions account for 22% of spending
  • Prescriptions drugs account for 14%

The study findings have serious ramifications for healthcare costs, explains David Newman, executive director for HCCI. "Think about these kids aging over time. If at each age they are more expensive than at an earlier cohort then it's going to be very difficult to bend that long-term healthcare cost curve."

Simply put: Spending could continue to climb.

"What happens when these kids become adults and enter the work force," asks Carolina Herrera, HCCI's director of research, "and they are still using a high level mental health services and expensive prescription drugs? What does that mean for employer healthcare costs?"

Those are excellent questions. In this age of the triple aim (better care, better health, and lower cost) insurers, providers, and parents need to know that these increased expenditures for childhood healthcare are yielding meaningful outcomes.

HCCI plans to continue looking into this issue to add to the understanding of what is driving the price increases. With three billion pieces of data at their finger tips, researchers may be able to make discoveries that will affect healthcare costs for generations to come.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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