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December 8, 2010

Diabetes Data

Filed under: Healthcare — Steve Krupa @ 5:17 pm

I have been looking at Diabetes data lately and thought I would share with you some of the more interesting statistics, coming from multiple sources, but still underscoring the phenomenon that we are on the front end of a diabetes epidemic in the US.

Like the rolling credits at the end of a film, here we go.

  • By 2020 an estimated 52% of the adult population of the US will be either Diabetic or Pre-Diabetic.
% Adults Diabetic Pre-Diabetic Total
Today 12% 28% 40%
2020 15% 37% 52%
  • Health spending on Diabetes and Pre-Diabetes costs about $194 billion today (around 7% of total healthcare expenditures) and is expected to increase to $500 billion by 2020 (at least 10% of total healthcare expenditures).
  • Most people with Diabetes are diagnosed between 4-7 years after they become diabetic.
  • 90% of pre-Diabetics and 25% of Diabetics are not aware of their condition.
  • Type-2 Diabetes represents 95% of all diagnosed cases.
  • The prevalence of Type 2 Diabetes has tripled since the 1980s (causes are believed to be due to the aging population, the longer lifespan of diabetics, and the increase in the prevalence of obesity)
  • The average annual medical costs for diabetics in commercial insurance plans tends to range from 1.8x-4.7x ($7,800-$20,700) the average annual cost of the remaining members of an insured population (around $4,400).
  • The average cost for diabetes increases significantly (into the 4.7x category) depending on complications, the most common being hypertension, the others being cardiovascular disease, including peripheral artery disease (PAD), and kidney failure.
  • Diabetes is the leading cause of blindness in working age people and a major source of Fetal and Maternal mortality during pregnancy.
  • $1 in $4 Medicare dollars go toward the treatment of Diabetes.
  • Diabetics use 4-6 times more medical services than non-diabetics.
  • Diabetics have an average of 23 contacts/year with physicians.
  • Utilization of physician services by Diabetics is increasing at around 30% per year.


Thanks to the United Health Center for Health Reform and Modernization and EosHealth, among others, for much of the above data.


July 6, 2010

Inside Value-Based Healthcare – Part 2: Who Pays for Health(care) Insurance

In my previous post, Value-Based Healthcare Part 1, I talked about the two primary business risks faced by insurers, Moral Hazard and Adverse Selection.  Recall that for health insurance markets to work effectively they must be structured to mitigate Adverse Selection (i.e., the reality that the very fact that someone is seeking insurance might make them uninsurable in the first place).  This means that the healthiest people must stay in the market as part of the risk pool, otherwise the underwriting will not work at affordable premium rates.  As such, employer-based Group Model health insurance has evolved as the prevalent distribution method.

So who pays for employer-based health insurance?

Today health insurance costs average about $4,800 per person per year.  While this expense is paid for by employers, it is essentially part of salary costs, and so it is really money that would otherwise be paid to employees were it not for the mandatory participation required in most Group Model plans.

Employers offer to buy the coverage on behalf of employees because they believe that having their employees insured improves productivity and it is viewed by prospective employees as a competitive perk.  This works out well from a risk pooling perspective, making Group Model insurance less expensive on average.  But what really drives the Group Model is its income tax subsidy.  The federal government does not assess income taxes on the value of Group Model health insurance (this subsidy does not exist for individual purchases of health insurance).

This tax subsidy is massive.  The average employee is in the 25% federal income tax bracket, making the subsidy worth about $1,200 per year (25% of the $4,800 average annual premium).  Approximately 180 million people participate in Group Model plans, meaning the total amount of this annual subsidy is about $216 billion per year.

So who pays for employer-based health insurance?

According to these calculations 180 million employees cost a total of approximately $864 billion, $648 billion is paid for by employees through payroll deductions and about $216 billion is paid for by the federal government through income tax subsidies.  These amounts exclude out-of-pocket expenses, which are by enlarge paid for by employees.


Let’s get back to Moral Hazard.

Have you ever noticed that people are very hesitant to make claims on their automobile and property insurance?  Rarely do the costs of minor fender benders result in an insurance claim.  Why?  Because people fear that claims on their auto policies will result in either their premium increasing or their policy getting cancelled.  People tend to reserve that type of insurance for major catastrophes, paying the cost of minor accidents out of their own pockets.

Most people do not behave this way when it comes to health insurance.  A very high percentage of healthcare expenses become insurance claims.

Few people lose their insurance because of high insurance claims.  As claims increase, the burden of the higher premium is shared among the risk pool.  As a result, Moral Hazard (changing your ethics because you don’t pay for the consequences of your bad behavior) in Group Model plans is severe, and many believe it contributes significantly to the 8-12% average annual healthcare inflation rate.  Despite the reality that employees pay for more than 75% of the cost of their health insurance, they are fearless when making insurance claims.


So, returning to the thread that ended Value-Based Healthcare Part 1.

Employer-based health insurance suffers from Moral Hazard.  Despite the fact that it seems obvious that employees pay the most of the tab, the cost is not individualized and the consequences of bad behavior are not perceived as even remotely severe.

Research backs the notion that when an insured party pays a higher percentage of the total cost of the service Moral Hazard reduces.

So the question becomes, if we are looking for an employer-based health insurance model that will counter increased healthcare consumption why not just increase the out-of-pocket payments and reduce Moral Hazard?

In some cases higher out-of-pocket costs can lead to Unintended Consequences, namely people forgoing necessary treatment.  For example, the medicines necessary to treat Type-2 diabetes are much less expensive than the costs associated with the side-effects of untreated diabetes like heart attack, stroke, amputations, blindness, etc.  A health insurer wants Type 2 diabetics to take their medications, however high out-of-pocket charges often impose barriers to compliance.

Medications like Glucophage, a treatment for Type 2 diabetes, have a high value.  The treatment costs about $400 per year, real money for an individual, but a small investment for a health insurer given that compliance with the drug should mitigate a number of side effects of Type 2 diabetes, saving money on hospitalizations and other forms of expensive healthcare.  Further, Type 2 diabetics should see podiatrists and ophthalmologists regularly.  Again, high co-pays for these services could mitigate compliance and increase adverse events within an insured diabetic population.

Value-Based Healthcare: Definition #2:

Value-Based Healthcare involves designing insurance benefits with economics that encourage (or remove the barriers to) the utilization of high-value healthcare services.

So why is Value-Based so new?  What are the barriers to implementing Value-Based?

These questions will be covered in future posts.

To leave you with something to think about, it was only until recently that the information technology necessary to begin experimenting with the implementation of Value-Based Healthcare became available.

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