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11 charts that help explain health care costs in Colorado

State lawmakers are expected to make curbing the cost of care one of the top priorities in 2019

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When the 2019 legislative session gets underway on Friday, health care — especially how much money goes into health care — will be among the most active topics of debate.

Gov.-elect Jared Polis has vowed to take on prescription drug prices and also rejigger how insurance rates are calculated. Hospitals are girding for fights over transparency in pricing.

Two state lawmakers representing mountain districts expect to introduce plans that would create, essentially, a state-run insurance company, according to The Denver Post. All the fine-print details, from how much it would cost to whether any doctors would accept it, are still unclear.

Update on Jan. 5, 2019:
The bills for the “public option” plan above have dropped, and they are more modest in scope. One, from Democratic Sen. Kerry Donovan, would create a pilot program to allow middle-income people in Eagle and Garfield counties to buy into the private insurance plans available to state employees. The bill leaves open whether the state would kick in to help cover premiums — as it does for its employees — or whether people would have to pay the full price. The second, from Democratic Rep. Dylan Roberts, instructs state agencies to study and develop a proposal for a government-run insurance plan open to everybody. 

Now, before the legislative fireworks commence, is a good time to study up on the basics of health care spending in Colorado. Here are 11 charts that will help you do just that.

1. The cost to have health insurance is soaring.

The Colorado Division of Insurance releases a report each year called the Health Insurance Cost Report, so let’s start there. (This year’s version summarizes what happened in 2017 — not 2018 — so it’s a bit dated, but still illustrative.)

In the 10-year stretch between 2008 and 2017, health insurance premiums rose 50 percent for people who had coverage through an employer only for themselves. For families with employer-sponsored insurance, premiums rose more than 60 percent — to an average of nearly $20,000 per year. That’s like buying a Toyota Corolla every year just to be able to have health insurance. (Employers pick up about two-thirds of that annual cost, on average.)

From the Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017, page 17.

2. But the cost to use health insurance is growing even faster

As anybody with insurance knows, premiums mostly buy you an insurance card (though, in health care, federal law also requires certain stuff, like preventative check-ups, to come gratis with your premiums). In order for your insurance to actually kick in and start covering costs, you have to first pay down your deductible.

And deductibles for health insurance in Colorado are rising even faster than premiums — 65 percent between 2010 and 2017, according to the Colorado Health Institute. That’s more than five times the rate of inflation.

According to a recent analysis the Colorado Health Institute did for the Colorado Hospital Association, the average deductible for a family with employer-sponsored insurance in the state is $3,700, and Colorado’s average out-of-pocket costs for health care are among the highest in the nation.

Courtesy of the Colorado Hospital Association and the Colorado Health Institute, from Affordability in Colorado, page 6.

3. Medical premiums aren’t covering all of insurers’ expenses

With those kinds of increases, you would think that insurance companies are laughing all the way to their money bins. But let’s jump back to the Division of Insurance’s cost report.

In 2017, insurers in Colorado spent 86 cents of every dollar that came in from medical premiums on covering medical expenses — a rate higher than the law requires. And, overall, insurers managed to spend about $150 million less on medical expenses in 2017 than in 2016.

Insurers also managed to trim administrative expenses in 2017, cutting them down to about 19 cents of every dollar from premiums. But, if you’re thinking to yourself that something doesn’t add up there, you’re right.

In 2017, for every dollar in medical premiums that Colorado health insurers brought in, they spent $1.05. Combined, that’s a loss of more than $275 million on the major medical side of their business. (But, when adding in their dental, vision and other types of coverage, most of Colorado’s biggest insurers made money in 2017.)

From the Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017, page 19.

4. Kaiser is Colorado’s biggest insurer

This one probably comes as no surprise to everyone who has for years heard actress Allison Janney instructing them on Colorado’s radio airwaves to “Thrive.” The Kaiser Foundation Health Plan of Colorado writes more than a quarter of all health insurance policies sold in Colorado, and no other company really comes close.

Kaiser also, at least for the last four years, has been above-average efficient in its spending — perhaps not surprising since it is both an insurance company and a medical provider, giving it control over both sides of the cost equation. From 2014 through 2017, according to the Division of Insurance report, Kaiser has spent an average of 95 cents of every dollar in premiums it has received on medical expenses. Over the same period, Kaiser’s administrative expenses took fewer than 7 cents out of every dollar of premium.

(Disclosure: The Colorado Sun’s health plan is through Kaiser, though we get no breaks from them.)

From the Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017, page 26.

5. Employee salaries are a big chunk of insurers’ costs

Let’s dive into those administrative expenses for all insurers a little more. Things like advertising, lobbying, legal costs and even charitable contributions were, while not insignificant, hardly a big hit for insurers in 2017. The biggest single driver of administrative expenses for insurers? Paying the people who work for them.

From the Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017, page 22.

6. There’s no one culprit for health insurance price increases

One of the big challenges for lawmakers as they look to rein in ballooning health insurance costs is to identify what is driving the increases. The problem is there’s not really one area of increase that applies across all consumers.

Every year, insurance companies give the state estimates for where they think medical costs are rising and how much, all broken down by the various insurance pools they serve. Together, this data is known as — duh — “trend.”

As you can see, it’s all over the place. If you get your insurance through a relatively big employer, you are likely in the “large-group” category. Small employers shop, either using the state’s insurance exchange or not, in the small-group market, and people who buy insurance on their own are in the individual market.

From the Colorado Division of Insurance’s Health Insurance Cost Report for calendar year 2017, page 21.

7. Hospitals get the biggest chunk of health care spending

Now let’s look more closely at where these dollars end up once they leave the insurers’ (or consumers’) bank accounts and go toward actually paying for medical services.

According to the Colorado Health Institute, total annual health care spending in Colorado now tops $49 billion, up from $29 billion a decade ago. (This includes all spending, including from government sources like Medicare or Medicaid.)

Hospitals get a little more than a third of that spending, slightly more than other doctor or clinical services.

Courtesy of the Colorado Hospital Association and the Colorado Health Institute, from Affordability in Colorado, page 4.

8. Hospitals spend most of their money on patient care

A little more than half of the money coming into hospitals goes into providing patient care, according to the joint Colorado Health Institute/Colorado Hospital Association report. Administrative spending at hospitals is about the same as it is for insurers, around 18 percent. Things like new construction and maintenance take up smaller chunks — but are still significant when it comes to the overall prices passed onto patients. The same goes for so-called uncompensated care, when hospitals get stuck with the bill for caring for patients.

Courtesy of the Colorado Hospital Association and the Colorado Health Institute, from Affordability in Colorado, page 4.

9. Looking big picture, Colorado health care spending is below average nationally

Given how much health insurance costs in some parts of our state, Colorado is actually not all that bad off when it comes to per-capita health care spending. Or, at least we weren’t. This is a data point with some caveats.

The first is that this number comes from 2014 — but it’s the most up-to-date federal data available. The second is that this number isn’t exactly a representation of how much was coming out of actual people’s budgets in 2014 to pay for health care. Instead, it’s the product of simple division: how much was spent on health care in the state in 2014 divided by the number of people. (And, again, that’s how much was spent in total, including by Medicare and Medicaid.)

So, in 2014, there was $6,804 in health care spending per person in Colorado, placing the state well below average nationally. But, digging a little deeper reveals some interesting distinctions. There was actually more spending per Medicaid enrollee and per enrollee in private insurance than the national average in 2014, and spending in those categories was also growing faster than the national average.

Where Colorado made up ground was in Medicare, where about $1,700 less was spent per enrollee than the national average in 2014 and spending growth was also below average.

Courtesy of the Colorado Hospital Association and the Colorado Health Institute, from Affordability in Colorado, page 3.

10. How much health care people use makes a big difference

Total spending isn’t just driven by the prices for health care services; it’s also about how often people are using those services. This is a double-whammy that can hit the Western Slope especially hard — leading to some of the highest health insurance prices in the country.

In 2016, people in western Colorado, excluding those who live near Grand Junction, used health care services 7 percent above the statewide median and paid prices for those services 29 percent above the statewide median. That meant insurers in that area spent a state-high $584 per enrollee per month to cover health expenses.

It’s worth noting, though, that these percentages can be volatile, creating an even tougher puzzle to solve. For instance, in 2015, people in western Colorado used health services about in line with the statewide median. Though utilization in Denver was above the median in 2016, it was slightly below in 2015.

All of these numbers come from the Center for Improving Value in Health Care, which maintains a database of millions of claims paid by private and government insurance programs in Colorado.

Courtesy of the Center for Improving Value in Health Care, based on its analysis of the Colorado All Payer Claims Database.

11. Private insurance companies may be billed more than what the service actually costs

For our last chart, we dive into a hot-button topic: Do Medicare and Medicaid heap costs onto people with private insurance by low-balling doctors and hospitals on payments and forcing those providers to make up the difference on the backs of the privately insured? This is an ongoing and contentious debate. Hospitals, meanwhile, say their prices are fair.

So, we will just set down this chart from a recent presentation to the Colorado Healthcare Affordability and Sustainability Enterprise and back away slowly.

The presentation was given by an official from the state Department of Health Care Policy and Financing, which runs Medicaid in Colorado and has been trying to tackle health care costs. It shows the estimated cost-shift ratio for several coverage sources — Medicare, Medicaid, private insurance and people who pay straight-up cash.

Think of this ratio as the exchange rate for what hospitals get paid relative to the estimated cost of the service provided. Figures below 1 mean that the hospital got less in payment than what their services cost. Figures above 1 mean they got more.

From a presentation by the Colorado Department of Health Care Policy and Financing to the Colorado Healthcare Affordability and Sustainability Enterprise on Dec. 18, 2018, page 12.

So that’s 11 charts and 11 different ways to look at our ballooning health care costs. Lawmakers will have their work cut out for them.

This story was updated at 10:40 a.m. on Jan. 4, 2019, to correct that the percentage differences in health care utilization shown in chart No. 10 are relative to the statewide median, not the statewide average.


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