The Reality of the American Health Care Consumer
Patients' ability to pay premiums and out-of-pocket costs is shrinking. They also need more convenient care. Are hospitals listening?
Health care leaders are starting to recognize that consumers are becoming a major decision-making force. Let’s be clear at the outset: The rise of the consumer is not the panacea that will solve all our problems. It is a reality that hospitals and health systems must respond to. For the foreseeable future, consumers will pay more for health care and be more involved in picking plans, providers and individual treatment options. This development means significant financial consequences for consumers (unlike in almost any other developed country).
Providers need to understand the financial predicament of the typical American health consumer and the responses consumers are making in this changing environment. At the same time, with a new congress and a political season of primaries and posturing just around the corner, pundits, politicians and plutocrats need to recognize where consumers are as voters, plan members, employees, patients and family members.
This fact-based review of where American health care consumers are and where they are headed is a synthesis of a wide variety of sources, including publicly available economic and survey data as well as proprietary survey data distilled from Harris Interactive/Nielsen’s Strategic Health Perspectives, a service that I have been involved in since its inception almost 30 years ago.
The short version is this: Health care costs have hit the limit of affordability for the typical American household, yet consumers are being asked to take on more of the cost burden (unless they get a subsidy in an exchange or are covered by Medicaid). When they have to make choices, the vast majority will pick cheap (less provider choice in return for lower premiums, even for those consumers receiving substantial subsidies), and they will forgo care (both necessary and unnecessary care) because they have neither the income nor the savings to pay for a significant out-of-pocket cost burden.
Welcome to the future. Hospitals and health systems just need to deal with it … we’ll get to the possible responses at the end of the column.
Why Focus on Consumers?
The American health care consumer is becoming older, fatter, more diverse, and more skeptical and demanding over time. But the key trend is that consumers are being asked to pay and choose more than they have in the past. Indeed, we may be nearing the cost-conscious consumer envisaged in my friend Alain Enthoven’s elegant conception of managed competition, in which consumers (my words not Alain’s) select a plan when they are well and live with the consequences when they are sick.
As more of the market moves to exchanges, as high-deductible health plans and narrow networks proliferate, and as managed care in public programs such as Medicare and Medicaid become the norm, so consumers will be asked to make more decisions, increasingly with their own money.
You can’t turn around without hearing about income inequality. (We talk about it, but can’t agree on solutions. Other countries have taken action on this; for example, fast-food workers in Denmark enjoy a minimum wage of $20 per hour, without much of a hit, surprisingly, to the price of a Big Mac.)
It is undeniable that in most countries, and particularly in the United States, most of the income gains have accrued to the top 1 percent and in turn to the top 0.1 percent and 0.001 percent of the income distribution. My worst nightmare is that America is re-creating 19th-century Britain with a self-perpetuating affluent aristocracy and a bunch of poorly paid servants. It’s like “Downton Abbey” in which only Kardashians and the scions of venture capitalism enjoy the pampered good life, and the rest of us are doffing our caps as Uber drivers or waiting tables at Michelin-starred restaurants that have a nine-month waiting list for a reservation.
The problem for health care is that we all get sick and, awkwardly and inconveniently, poor people are sicker on average than rich people. Cause and effect work both ways here, by the way.
So, let’s just focus on typical or average consumers. Given the disparity of income, it is wise to think about median consumers rather than average (mean) experience. For example, median household income for 2015 will come in around $53,000 (mean will be in the low $70,000s). But here is the kicker: The average health plan premium for a family in a typical employer-sponsored plan is in excess of $17,000 per year.
The average family can’t afford the average premium. On top of that, each year the share of the premium that workers have to pay continues to rise.
Nor is there much prospect of median incomes rising. They have remained flat for nearly 20 years, and likely will continue to remain flat because of globalization and technology that create a bifurcated economy where the hyperproductive (or super-fortunate) few do well while everyone else is in a global competition for work.
Perhaps more alarming is the current net worth of Americans and their current cash savings, both of which have been dramatically affected by the Great Recession. For example, households with incomes up to 400 percent of the federal poverty level are in a negative financial asset situation and have liquid assets of less than $3,000. So a $3,000 deductible virtually wipes them out. Most Americans live paycheck to paycheck — not the best situation for high-deductible health care.
How do consumers deal with this rising economic burden of health care, and how do they feel about it? The short answer to the first question is that they go without care when they have to pay; they’ll skip doses of medications (even injections for cancer care!). For example, recent Commonwealth Fund Tracking Surveys show that lower-income folk on private insurance are particularly vulnerable and, as a consequence, 46 percent of Americans with private insurance who earn below 200 percent of the federal poverty level have experienced some cost-related access problem in the past 12 months: They have skipped doses, failed to fill a prescription, or neglected to visit a doctor or specialist when needed.
The problem is aggravated for those with one or more chronic illnesses. Detailed studies by RAND researchers show that cost-sharing causes consumers to forgo necessary and unnecessary care in equal measure. “Skin in the game” is a blunt and somewhat cruel instrument.
In addition, consumers often lack the literacy to understand health insurance concepts, and many consumers report to surveys that they “don’t know” what their premiums, deductibles and co-payments actually cost them. For way too many of us, health care costs are a “gotcha” after the event.
Harris/Nielsen surveys of consumer emotion reveal that consumers are not exactly delighted to be empowered. When asked how they feel about health care and what they pay, the most common responses are typically “resigned” and “accepting,” not “hopeful” or “empowered.” But among the chronically ill and economically vulnerable, they are much more likely to use terms like “powerless,” “depressed” and “angry.”
Aging and Diversity
America is becoming older and more diverse. We have known this would happen for a long time, but now it is real. For example, from 2012 on, the number of folks turning 65 increases from an annual run rate of approximately 2.6 million per year to 3.5 million per year in 2015, a number that will rise to nearly 4 million per year over the next decade. (By the way, one positive effect of this baby boom bolus is that it will reduce the average age of the Medicare population at least for the first decade and, it’s hoped, provide some countervailing balance to the rapid growth in the over-85 population, which is growing because of enhanced longevity.)
As seniors become Medicare-eligible, they are likely to pick Medicare Advantage. Surveys show that 57 percent of those turning 65 state a preference for Medicare Managed Care as opposed to only 29 percent of the currently eligible population.
The ethnic composition of Americans is changing, too, and of particular importance is the Latino population. Latinos account for 17 percent of the population, and they will grow as a share of the total population and of the electorate for the foreseeable future. They are disproportionately concentrated in the South and West of the United States. Indeed, three states (California, Texas and Florida) account for 55 percent of all Latinos in the United States.
Latinos are an important segment for coverage expansion. Remember that a third of the uninsured are Latino and, conversely, a third of Latinos are uninsured. While 20–30 percent of the Latino population may be ineligible for coverage expansion because they are undocumented, many Latinos are benefiting from coverage expansion through both exchanges and through Medicaid expansion where available. California and Texas alone accounted for a full half of all uninsured Latinos prior to Obamacare. As a result of Obamacare, Latinos living in California are benefiting substantially from coverage expansion; Latinos in Texas, not so much.
But while Latinos are concentrated in a few states, the states with the fastest-growing Latino populations are rural states such as Alabama, South Carolina, Tennessee and Kentucky. Diversity is increasing everywhere as the rural economy mirrors the global economy we described earlier: Hyperproductive older white farmers armed with sophisticated tractors and technology are supported (when needed) by migrant Latino or Southeast Asian farm workers.
Emerging Consumer Aspects
Consumers have other factors, beyond buying things. They are also voters, employees, parents and spouses; they live in rural and urban settings; some are more digitally oriented than others and so forth. Let’s take a quick tour of some of these other aspects.
Consumer as voter. The American public is not in love with Obamacare. Nobody is changing anyone’s mind on this. We all have entrenched opinions based more on ideological preferences than real experiences.
Ironically, many middle-class voters attribute the rise in out-of-pocket costs of their own employer-sponsored coverage to Obamacare (which is a tenuous connection at best and dead wrong at worst). This perceived harm to middle-class health care coverage was a centerpiece of the $400 million-plus spent on anti-Obamacare ads in the 12 swing senate races. Republicans crushed Democrats in those states, and the ads were credited as being helpful in mobilizing the conservative base. The Democrats’ extreme reluctance to tout gains made by Obamacare meant that it was a very one-sided debate in those states.
Yet, surveys reveal that consumers who are newly covered by Obamacare (whether through exchanges or Medicaid expansion) are both grateful and satisfied with their coverage. Indeed, the newly covered are more satisfied with their coverage than those with employer-sponsored insurance, according to recent Gallup polls.
Consumers as employees. More than 160 million Americans receive health insurance through employer-sponsored coverage. Most economists agree that the cost of health benefits is a tax-efficient form of compensation. Middle-class consumers did not receive a wage increase in the last two decades; it all went to health care.
Employees increasingly are exposed to more cost burden for health care coverage, a trend that has been building for more than a decade. But, as we described in a previous column titled “Urgent Care,” employers feel a sense of urgency, because of the Cadillac tax and other factors, to take more action against health cost increases. Employers are redefining retiree and spousal benefits to place more of the economic burden on households. In addition, more employers will use exchanges, both public and private, as a tool in their health benefit strategy, further moving the market toward retail and asking more of consumers to choose and pay.
Rural consumers. Rural Americans have the same issues as all consumers, only they are more extreme. They tend to have lower incomes, poorer health status and are less likely to have coverage through work because there are fewer large employers in rural areas. As a consequence, rural consumers also are more likely to be uninsured and more likely to be covered by public rather than private insurance.
But, the political geography of the United States aggravates the coverage situation for rural consumers. Analysis by the Kaiser Family Foundation found that a full 65 percent of the 7.3 million uninsured who live in rural areas were in states that were not expanding Medicaid. (Only half of the urban population is in non-expansion states.) Given the composition of the new Congress and the makeup of state houses and state legislators, rural consumers will have higher numbers of the uninsured, at least for the next two years, and maybe forever.
The e-consumer. Ask yourself how much you rely on your smartphone to conduct your daily life. We shop and manage all our travel, relationships and families with our phones.
The smartphone is the platform for our mobile life. And so it must be for health care. Health care is behind, but it’s catching up fast. Vast amounts of venture capital investment are being poured into apps to serve consumers’ health needs. Most of these investments will turn out to be duplicative and ineffective, but there will be many that change how we manage and deliver care.
For example, recent surveys by the Harris Poll show that consumers of all ages have a keen interest in virtual health care visits. Similarly, consumers expect to interact with health care as they do with other service industries — using online appointment scheduling, comparison-shopping and tools for navigating through the continuum of care.
The phone is also rapidly becoming a platform for clinical apps that monitor and manage chronic conditions and improve wellness. Again, significant proportions of consumers are demonstrating interest in these apps and devices. How many of you got a Fitbit for Christmas?
Retail consumers. As the first $1,000 to $3,000 of health spending moves to an out-of-pocket basis, consumers are looking to new retail care options that provide convenience and affordability. They express strong interest in retail clinics, work site-based clinics and urgent care centers as convenient alternatives for many acute and chronic care needs. Indeed, 20 percent of consumers have used one of these facilities in the past 12 months.
Consumers value convenience, even more than cost. Location and ease of making an appointment after hours are critical factors in their reason to go retail. Health systems, particularly those with affiliated primary care practices, would be well-advised to serve the expectations of retail consumers.
Implications for Consumers
The American health care consumer has shallow pockets. Providers and policymakers must recognize this.
If Republicans win the White House in 2016, we can expect a greater burden on the consumer to pay for and choose health care: Medicaid expansion would be pared back, more high-deductible, bare-bones plans would be the norm, and Medicare Advantage would grow even faster, perhaps with a defined contribution. Exchanges likely would still be a vehicle, but the subsidies may be pared back, again putting more of the burden on overstretched, middle-income households.
If Democrats regain control of the Senate and win the White House, then Medicaid expansion would likely continue beyond the existing states, and there would be a higher likelihood of federal subsidies remaining for exchange-based coverage.
But, all that is ahead. As we start the race for the White House, candidates of both parties will have to propose what they are going to do about health care (if not Obamacare, then what exactly?) and they must recognize where the American consumer stands economically. Good luck with all that.
Either way, the consumer will remain an important force, because no administration can afford first-dollar coverage when there is no deductible, for a generous benefit package for a technologically sophisticated American health care delivery system. Just ask an actuary.
Well, actually there is another way: budgetary targets and controls. But, that is a subject for another day and is very unlikely as a national solution quite yet. We will be watching and reporting on states like Massachusetts and Maryland, which are experimenting with this path.
Implications for Providers
First, as I said at the outset, having consumers pay more is not a solution; it is a reality. But we can do better than dumb cost-shifting, blind premium support or simple tax credits. Value-based benefit design (VBD) shows some promise in targeting consumer incentives to encourage consumers to choose more wisely. In addition, large integrated systems of care that take risk (directly or in partnership with plans) may be positioned best to apply VBD principles to engage the consumers and communities they serve in a more creative and effective way — by waiving economic barriers to primary care and partnering with retail provider systems and other community resources.
Health system leaders need to be attentive to the economic circumstances of American health care consumers and their preferences and changing needs. As we have seen, this will require investment in electronic infrastructure; service redesign; and dealing with consumers who are facing revenue cycle issues, such as collections.
The needs of the shallow-pocketed consumer also may redefine community benefit away from uncompensated care to undercompensated care. For example, it may mean providing ambulatory health care services on a systematic basis to maximize the health of the population you choose to serve, regardless of their economic circumstances. As the burden of inpatient uncompensated care falls (in the Medicaid expansion states, in particular), many health systems will focus on new ways of serving the economically vulnerable health care consumer as a true community benefit.
Ian Morrison, Ph.D. (email@example.com), is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.