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25 things to know about healthcare costs

Written by Ayla Ellison | October 25, 2016

From ACA mandates to baby boomers rapidly switching to Medicare, there are a number of factors influencing healthcare costs in the U.S.

Here are 25 things to know about those costs.

The difference between costs, charges and payments
1. Before delving into an analysis of healthcare costs, it is critical to understand the difference between healthcare costs, charges and payments. Hospital charges are essentially their list prices for medical services, which are different from hospitalization costs, or the actual amount of money insurers, patients or the government end up paying hospitals in exchange for services.

2. Hospital input costs are the costs a hospital incurs to provide care to a patient. This includes both variable costs (salaries of clinicians and costs of supplies and medications) and fixed costs (overhead expenses and cost of equipment, land and buildings), according to a report from The Advisory Board Company.

3. The prices on a hospital’s chargemaster bear little relationship to the amount most patients are asked to pay. That’s because commercial insurers negotiate discounts with healthcare providers on behalf of their members, and Medicare and Medicaid set fixed payment rates for hospital services, which are often less than the actual cost of care. Additionally, most hospitals allow low-income patients to receive free care or care for a reduced charge.

4. Hospital list prices aren’t completely irrelevant, however, as they usually serve as a starting point for negotiations with commercial payers.

5. Hospitals may use chargemasters to boost their finances. A study published in the September issue of Health Affairs suggests hospitals were using chargemaster prices to drive up revenue in 2013.

National healthcare spending
6. National healthcare spending grew 5.5 percent in 2015, reaching $3.2 trillion, according to estimates from CMS’ Office of the Actuary published in July.

7. This growth marks an increase from 2014, when rapidly rising drug prices and health insurance expansion under the ACA drove spending upward 5.3 percent.

8. National healthcare spending is expected to grow at an average annual rate of 5.8 percent over the next decade, according to CMS.

9. From 2015 to 2025, health spending is projected to grow 1.3 percentage points faster than gross domestic product.

Medicare, Medicaid and CHIP spending
10. Spending for the major government healthcare programs will rise by nearly $55 billion, or about 6 percent, in 2016, and Medicare will account for more than half of that increase, according to budget projections from the Congressional Budget Office.

11. Outlays for the Medicare program are expected to increase by $30 billion, or 6 percent, this year, with growth largely driven by increased spending per person on prescription drugs.

12. Medicaid outlays are expected to increase by $15 billion, or 4 percent, this year. The CBO anticipates Medicaid enrollment will be roughly flat in 2016.

13. The CBO estimates outlays for the Children’s Health Insurance Program will climb $5 billion this year, to $14 billion.

Prescription drug costs
14. Prescription drug spending increased 12.2 percent to $297.7 billion in 2014, faster than the 2.4 percent growth in 2013, according to CMS.

15. Inpatient hospital drug costs increased by an average of 38.7 percent per admission between 2013 and 2015, according to an analysis from the independent research organization NORC at the University of Chicago.

16. According to a Kaiser Family Foundation poll, 82 percent of Americans want the federal government to negotiate with drug companies to get lower prices on medications for Medicare beneficiaries.

17. Seventy-eight percent of Americans support limiting the amount pharmaceutical companies can charge for high-cost drugs for illnesses like hepatitis or cancer, according to the KFF poll.

Out-of-pocket healthcare costs
18. In recent years, patients have become increasingly responsible for a greater share of their healthcare expenditures due to changes in health insurance policies.

19. Out-of-pocket spending on healthcare costs increased 2.1 percent in 2013. Due to expanded coverage through Medicaid and private insurance, out-of-pocket healthcare spending growth slowed to 1.3 percent in 2014, according to CMS.

20. In 2009, annual out-of-pocket spending on hospital care was $25.6 billion, according to the Peterson-Kaiser Health System Tracker. Out-of-pocket spending on hospital care steadily increased over the next three years, reaching $32.7 billion in 2013.

21. Annual out-of-pocket spending on hospital care fell 4.1 percent to $31.4 billion in 2014.

22. Out-of-pocket spending on prescription drugs increased 2.7 percent to $44.7 billion in 2014, according to CMS.

Costs broken down by hospital type
23. The average cost per inpatient day in 2014 at state/local government hospitals was $1,974, according to the latest statistics from Kaiser State Health Facts. That’s up from $1,878 per inpatient day in 2013. These figures are an estimate of expenses incurred in a day of inpatient care and are adjusted higher to include an estimate of the volume of outpatient services, according to Kaiser State Health Facts.

24. The average cost per inpatient day in 2014 was $2,346 at nonprofit hospitals, compared to $2,289 per inpatient day the year prior.

25. The average cost per inpatient day at for-profit hospitals in 2014 was $1,798, up slightly from $1,791 per inpatient day in 2013.

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