Healthcare Costs Are Rising: What Advisors Can Do To Keep Them Low For Clients

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It’s no secret that year after year healthcare costs go up. Typical expenses such as insurance premiums, the cost of care from hospitals, and drug prices, all increase by at least some amount every year. Healthcare is a significant part of every person’s life, so you can bet that rising healthcare costs affect your clients’ finances and wellbeing. Despite the continuous rise, there is hope. There are several strategies you can use to reduce the amount of money clients spend on healthcare. Plus, many of these strategies will also help your clients live healthier lives.

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Why are healthcare costs rising?

Before we go into what financial advisors can do to help keep healthcare costs low for clients, let’s dive just a little bit deeper into why healthcare costs are rising in the first place. We won’t go too in-depth, because a detailed article on “why is healthcare so expensive?” could easily become a novel.

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Drug costs

One of the biggest players in the healthcare industry, drug manufacturers, is also one of the biggest reasons healthcare costs are rising. In fact, one KFF report found that “​​Half of all Part D covered drugs (50% of 3,343 drugs) and nearly half of all Part B covered drugs (48% of 568 drugs) had price increases greater than inflation between July 2019 and July 2020, which was 1.0%.”

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Expensive technologies

Although surely well-meaning, medical technology is not cheap. Medical innovation that makes surgeries and other medical treatments easier and less invasive is great, but not if hospitals have to increase their prices to pass the bill to insurers and consumers for their fancy new tech. Innovation often comes at a price, until the technology is able to be distributed in a more cost-effective way.

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Fragmented care

Fragmented care is when different healthcare providers and/or healthcare organizations do not work well together because of different goals, mismatched funding, laws and regulations, data management, and training. One study found that chronically ill patients who experience high fragmented care spent $4,542 more in healthcare costs over a period of 35 months.

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Fee-for-service

Fee-for-service (FFS) is the most commonly used reimbursement model in the U.S. FFS means that providers charge based on each service given. So, if you ask for an itemized bill from a hospital, you may see a charge for the bandages used, how many times medical staff entered your room, the two Advil you were given, and so on. Insurers reimburse providers for the services they provide, rather than the outcomes of the procedure. Essentially, patients aren’t paying for the value or benefit they received from care; just the services. Even if they’re not better after the procedure, they still have to pay for all the services charged to them.

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High admin costs

An FCA Healthcare Economics paper reported that 25 percent ($760 billion) of administrative costs are considered unnecessary and wasteful. Plus, the U.S. leads in administrative costs for healthcare spending among other high-income countries.

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End-of-life care

About 25 percent of all Medicare spending goes toward end-of-life care. This kind of care and spending is expected to increase since Baby Boomers (those born between 1946-1964) are the second-largest age group in the U.S. and will all be 65 or older by 2030. 

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Provider consolidation

Providers are another major player in the healthcare industry, and over the last several years have been experiencing consolidation — the practice of hospital systems, private equity firms, and other large entities acquiring physician practices. This leads to high healthcare costs for many reasons, one of them being that it reduces competition in areas. One study found that hospitals without any competitors in a 15-mile radius have prices that are 12% higher than hospitals in markets with four or more competitors.

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How can financial advisors help clients keep their healthcare costs low?

Now that we’ve given some background as to just a few of the reasons healthcare costs are rising, let’s move on to what’s really important — how you can reduce those costs for clients.

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Analyze and adjust insurance costs. 

Just because your client has always had the same health insurance plan doesn’t mean they should keep it that way. Or even that the health insurance plan they had last year is right for next year. Conducting a HealthPlanning Analysis will help you and your client to see ways they can reduce their health insurance costs, such as changing carriers, negotiating rates, choosing to be self-insured, or selecting a high deductible health plan with their current carrier.

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Choose providers carefully.

Many people don’t know that their insurer will not cover the visit if they see a provider who is out-of-network with their health insurance plan. That leaves your client on the hook for an unexpected (and often expensive) bill. Most health insurers have websites that allow beneficiaries to see which providers are in-network. Make sure your client knows where and how to access this information so they can ensure they’re going to an in-network provider. 

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Another cost-saving piece of advice to give clients: only go to a hospital if you’re actually having an emergency. Hospitals are notoriously expensive, whether they’re in-network or not, and will often overcharge for even the simplest of visits. If your client needs non-emergency medical care but can’t go to their primary care physician, their next best option for affordable care is to visit an urgent care clinic.

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Practice healthy habits.

Another way to keep healthcare costs down is to practice good preventive care, disease management, and wellness. Going to yearly physicals, treating a problem as soon as it appears (rather than waiting until it’s an emergency), and receiving health screenings are all examples of good preventive care that can reduce healthcare costs in the long run. Eating healthy, whole foods and getting exercise are great ways your client can improve their health and in return, spend less on healthcare. After all, if you’re in good health, you likely won’t utilize healthcare except for yearly physicals and screenings, and the occasional illness (flu, cold, allergies, etc.) Clients have likely already heard this advice from their doctor, but odds are that their doctor didn’t tell them the monetary benefits of staying healthy. Individuals who are relatively healthy tend to spend less on healthcare than those with chronic conditions or other health issues. For example, “The Centers for Disease Control estimates that a 10% weight loss could reduce an overweight person's lifetime medical costs by $2,200 to $5,300.”

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How can financial advisors show clients the value of these cost reduction strategies?

Showing clients the actual cost savings they’ll receive is a great way to convince them to change health insurance carriers, practice healthy habits, and more. But, if you’re having a difficult time finding the data to show the cost reduction, you could always show clients this blog or one of our case studies which feature real clients and their savings. Or, you could use our healthcare planning software, which pulls all the information you’ll need to not only show the monetary value of making changes but also suggestions on what changes to make.

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