Savings Potential from Prevention and Risk Reduction for the Commercially Insured

Author(s): Elizabeth Rula, PhD; James Pope, MD; Joel C. Hoffman, ASA, MAAA, FCA

thumb_SavingsPotentialHealth care costs present a substantial threat to the United States economy. U.S. health care spending has risen dramatically as a percentage of gross domestic product (GDP) over the past 30 years and is projected to rise 38% faster than GDP over the next decade, reaching 19.3% of GDP, or $13,387 per U.S. resident, by 2019. Three trends suggest that without significant changes to the demand for or supply of care, these rising costs will become unsustainable.

The Patient Protection and Affordable Care Act, signed into law in March 2010, has a goal of decreasing costs by improving the efficiency and quality of the delivery system. These supply-side approaches are needed, but they are not likely to reduce the rate of growth in spending; rather, these approaches can adjust the level of spending at a point in time. Currently, the uninsured population spends 62% less on health care than the insured population. Much of that difference is attributable to the lack of economic access, raising serious concerns about system capacity and total expenditures when these 41 million individuals secure coverage. For these reasons, the new law also introduces new demand-side strategies, notably including a requirement for the provision of health, wellness and prevention services for the entire insured population.

Ultimately, bending the cost curve will require a substantial decrease in the demand for care. Although the expansion of coverage may help, the underlying cost driver in the system is chronic disease. In 2005, 133 million Americans suffered from one or more chronic conditions, and the prevalence is increasing at an unprecedented rate. Health care for people with chronic diseases already accounts for 75% of the nation’s total health care costs, a number that will only increase without widespread and effective efforts to prevent and manage these conditions as a means to reduce demand and control costs. Strategies may include the expansion of programs that improve the health of the population through the promotion of self-efficacy, behavior change, and the ongoing management of health and disease. Such programs have already proven effective on a small scale. employers who have implemented wellness programs for employees have experienced short-term medical cost savings more than three times what they invested in the programs. However, less is known about the opportunity for long-term reductions in medical costs from health, wellness and prevention initiatives across the entire commercially insured population

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Topics: Health Conditions Performance/Productivity Health Plan & Health System Medical Costs & Utilization