One year after health care reform becomes law, Deloitte uncovers multiple opportunities to expand products and services to help consumers and corporate clients manage rising health care costs
A new Deloitte study finds that as a consequence of hidden health care-related costs, consumers have significantly less discretionary spending power than previously thought, creating a potentially significant growth opportunity for financial institutions — if they sharpen their consumer and corporate-client strategies in this area.
Chief among the implications is how this increase will change consumers’ spending patterns, income and creditworthiness in the coming years. Consumers concerned about the cost of health care are already acting to avoid higher exposure to health care expense burdens, the study finds.
“The ability of the U.S. economy to recover will be affected in part by how much consumers have in their pockets to spend; the more spent on health, the less is available to boost other sectors, including financial services,” said Andrew Freeman, executive director of the Deloitte Center for Financial Services.
“For financial institutions searching for growth in any place they can find it, health care offers real potential to increase revenue,” said Freeman. “With greater insight into how and where consumers are spending their money, banks and insurers can consider product innovations, as well as savings and credit products, linked to different aspects of consumer trends in health care.”
The study finds – almost one year after health care reform was signed into law – that there is more than $363 billion in hidden health care costs than traditionally reported in official government accounts. These hidden costs are attributed to expenditures that fall outside of traditional areas such as doctors, drug prescriptions, hospitals and insurance coverage. This represents an additional 14.7 percent of health care spending that was not previously captured in the National Health Expenditure Accounts data. More than half of the additional spending is the result of the estimated value of supervisory care, or care given by unpaid relatives and friends.
The additional costs captured in the new Deloitte study support an increase in consumer discretionary spending on health care from 16.2 percent – for items traditionally reported by the government – to 19.9 percent, which surpasses housing and utility costs at 18.8 percent.
“The health care and financial services industries are more connected than many realize — if their fortunes are not joined at the hip, then they are certainly very close,” said Paul Keckley, Ph.D., executive director of the Deloitte Center for Health Solutions. “Banks and other payment processors are also vital parts of the system and face daunting competitive challenges as technology brings new methods for handling consumers’ medical records and new opportunities for non-banks to deliver mobile electronic payments at the point of service or sale.”
Additional implications for financial institutions include:
- Maximizing Strategic Lending Opportunities into the Health Care Industry: The future costs associated with supervisory care in particular have the potential to be substantial, according to the study. In order to build successful lending pipelines, financial institutions may need a better understanding of the effects of these unforeseen costs on the 18 distinct health care sectors, as well as any associated revenue challenges that could come from annuity-like third-party payments such as Medicare, Medicaid, and commercial insurance in the future.
- An Opportunity to Counsel Health Care Suppliers and New Entrants: Delving deeper into the $2.5 trillion spent annually for the health care system, an estimated one-third of total expenditures goes to suppliers to the health care industry, including manufacturers and retailers. A number of leading companies from other industries are also looking at making inroads into the industry. Each will likely need investment banking, cash management and line of credit services from banks in order to support new strategies and increasing costs.
- New Strategies for Insurers: With this shift, insurers may have to work harder to educate consumers about the value of life insurance, disability and retirement products to overcome the perception that they are “discretionary” at a time when higher out-of-pocket medical costs are shrinking disposable income. In addition, insurers will likely have to be more innovative and flexible to sell non-mandatory products; for example, offering long-term care options to more traditional life insurance policies.
- Growth via Cost Reduction: Disparate systems and a lack of technology standards are limiting the progress towards “electronification” of medical claims and payment processes. Banks should consider developing innovations and technologies to help organizations eliminate manual processes, improve disconnected systems/workflows for both payers and providers and how to speed up treasury services and the payment cycle. Related areas to consider include enhanced and alternative distribution channels and revised pricing models.
Among the study’s most significant findings:
- In 2009, the country’s total health expenditure was $2.83 trillion.
- Approximately 80 percent of supervisory care’s total costs ($161 billion) fell on people with family incomes of less than $50,000, the median household income in the U.S.
- Seniors account for 36 percent ($1.01 trillion) of total health care expenditures, but are only 13 percent of the population.
The Deloitte report, “The Hidden Costs of U.S. Health Care for Consumers: A Comprehensive Analysis,” was conducted by Deloitte’s Center for Health Solutions and Center for Financial Services to gauge the total costs consumers actually spend on health care products and services, beyond what is typically paid by insurers and other government sources, such as Medicare and Medicaid. A copy of the overall study – including some of the financial services implications – is available on Deloitte’s website at www.deloitte.com/us/consumerhealthspending.
In this study, the most recently available NHEA data (2008) was projected for 2009. Information drawn from a variety of sources was used to produce estimates of health expenditure in identified additional areas. Information from the Medical Expenditure Panel Survey (MEPS) was used to develop estimates of expenditure by family size and income. When combined, a dataset was produced which represented a broader picture of the health sector in 2009. This final dataset estimated total health expenditure by payment source, age group, family income and family size for each health service area.
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
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