Health care costs for Oregonians increased more per year than the rest of the U.S. Spending on health care went up by about 50% between 2013 and 2019, an average of 7% every year. That’s according to a new report from the Oregon Health Authority. Jeremy Vandehey, director of health care policy and analytics for OHA, spoke with Dave Miller on OPB’s “Think Out Loud®” about the reasons for this increase and the impact on Oregonians.
Dave Miller: Welcome back to “Think Out Loud.®”
Jeremy Vandehey: Thanks Dave, Happy to be here.
Miller: Let’s start with the actual increases over this six-year period, because they varied for the different categories of how people get their insurance: Medicare, Medicaid and private insurance. How big were the increases for these different marketplaces?
Vandehey: So we have a pretty complex health care system as most folks know, and people get their insurance and access to health care systems in a variety of different ways. The three big buckets we think about are; Medicaid, which is generally folks who are lower income or disabled; Medicare, which tends to be folks who are older or disabled; and most of the state gets their health insurance through their employers. We saw on average the rate of growth across the entire state was about seven percent. Medicare was by far the largest of that, second was commercial, and then finally was with Medicaid.
Miller: How do those increases compare to inflation over that period? And this is before the really crazy inflation we’ve seen in the last year, but how do they compare to inflation and wage increases?
Vandehey: So this report is before the pandemic, we’ve got some indications of what’s been going on through the pandemic, but this report takes us up to 2019. This report looks at the amount actually paid into the health care system, so it’s looking at the amount insurers pay, but also the amount that people pay themselves out of pocket. In Oregon that grew just about 7%; nationally it was closer to 4%. When we look at a variety of other indicators, that amount is greater than pretty much every other economic indicator. Nationally inflation grew, during that period, just under 10%; health care grew about 49% in Oregon. I think what’s probably more meaningful for Oregonians is comparing what’s happening with health care spending and health care costs compared to their own incomes and wage growth. So over that period, health care spending in Oregon grew 49%; per-person income grew 31%; and wages grew about 21%. So we’re talking about health care spending growing more than twice the rate of what people are seeing in terms of increases in their take-home pay.
Miller: Why is it that health care spending is outpacing those other aspects of our economy?
Vandehey: I mean, this is the several billion dollar question that everybody’s trying to tackle, and unfortunately there’s no one single answer to it. It’s been on this trend nationally, and in Oregon, for decades. What we’re really trying to do here is shine a light on what those indicators are. This is part of a new program we’re launching to put out more analysis that’s going to start to shine a light. But what we saw here was that pretty much all parts of the health care system outpaced that wage growth. The biggest growth area was pharmacy. What we’ve seen is there are a lot of new blockbuster drugs. We’re seeing drugs come out that are for very small populations, folks with rare types of cancer, rare diseases. They are fantastic new treatments that are improving people’s lives, but at really enormous costs. But a lot of times people don’t see these cost increases that are really being paid by insurers and then ultimately trickle down to consumers.
Miller: This is where the way we pay for health services in this country gets so mind-bogglingly and infuriatingly complicated.
Vandehey: We have an extraordinarily opaque system and it’s most opaque with pharmacy costs because what happens is; the insurer pays an amount and then later they get a rebate. The consumer sees none of that. It’s very hard to sort all that out, and figure out exactly what the price is.
Prices within the health care system are all over the place. A normal delivery of a baby in Oregon can range from $5,000 to $20,000, depending on which hospital door you walk through. And consumers usually have no idea, and often don’t know until after they get the bill for their deductible or copay.
Miller: What’s the connection between this nearly 50% over six years price increase, and the actual out-of-pocket expenses for Oregonians?
Vandehey: Insurance providers set their premiums based on what they think they’re going to have to pay providers in the health care system. As those premiums go up, we’re seeing deductibles increase to try to keep premiums down. We’re seeing copays increase to try to keep premiums down. And we’re seeing a larger and larger share of the premium being shifted to employees. So it’s really a double whammy for families in the state. What they’re seeing is health care spending goes up, employers have to spend more money on that, which is less money they can put into wages.
Miller: So, do you have a sense for what health care costs the average Oregonian right now as a percentage of income? And how has that changed?
Vandehey: If you look at the amount that people have deducted from their paycheck, or they’re paying copays, it’s about 10% of their take-home pay. If you look at the amount that an employer, and the employee combined pay, it’s about 30% of income. Miller: Why was the increase for Medicare so much bigger, for example, than for Medicaid?
Vandehey: We saw very rapid growth and pharmacy spending within Medicare, and that was largely due to specialty drugs. There’s a lot of specialty drugs that are really focused towards folks with fairly rare and chronic conditions. And we see that, probably at a higher rate, within the Medicare population and the older population and folks with disabilities. Spending on those drugs tripled over that period from something like 6% to 20%.
Within Medicaid, we launched a whole new delivery system, really aimed at trying to be more efficient and trying to contain costs and improve outcomes. We built a whole new Medicaid system aimed at prevention, and primary care, and trying to coordinate folks’ care to be more efficient so that folks would be healthier and would need fewer hospital visits. And so we’ve had a whole series of reforms within the Medicaid program that I think this is showing are panning out and actually are providing a better lower cost option.
Miller: I’m glad you brought that up because that’s the flip side of Medicare. The fact that the Medicaid population saw the lowest increase in health care costs, is in a sense validation of the big changes. This, in your mind, is evidence that something actually is working?
Vandehey: Absolutely, and I think it’s important to not just look at the money figures. What we’ve seen in other analyses within the Medicaid system, is health outcomes, and quality improve. We’ve seen people’s reported health status improve, We’ve seen access improve, or at least being sustained, over that period of time. We’ve seen a lot of other indicators that it’s not just saving money, but actually improving health and improving quality as well.
Miller: So let’s turn to the other interesting fact here: that Oregon saw a bigger increase in overall health costs between 2013 and 2019 than the national average. Why is that?
Vandehey: I think that’s the big question here. We have launched a new statewide cost growth target program. What we’ve said is that’s number is unsustainable, and we’ve set a new target of 3.4% annual growth. We are about twice that right now. It’s a program the legislature passed a couple of years ago and is now off the ground.
Miller: How much power do we actually have at the state level to decide how much Oregonians will have to pay for health care?
Vandehey: I think it’s important to note that this program is not a cap, it’s sort of a goal. We’re setting a target and we’re measuring against it, and we’re trying to figure out if we’re not meeting it, why. But it’s true that a lot of the money comes from the federal government and the health care system. Pharmacy, I would argue, really is a national issue. And there’s, there’s some things we’re trying to do as a state, but that really is a very difficult thing for an individual state to tackle. The rest of the health care system is local.
One issue that I think we’ve been particularly worried about is: we’ve seen a lot of consolidation within the health care system. We’re seeing um providers combined. We’re seeing hospitals buy up local providers. We’re seeing out of state companies buy local providers. The trend nationally is, when that happens, prices generally go up.
Miller: Jeremy Vandehey, thanks for joining us.