Healthcare Costs Basics

Healthcare costs are rising more quickly than incomes, in Connecticut as for the rest of the US. Total healthcare costs per person in Connecticut are higher than the US average but are comparable to similar states and are growing less quickly. Medicare leads the state in per person cost growth. Despite spending more than other Americans, the quality of care in Connecticut is just average, and it’s not improving. The US spends far more on healthcare than other developed countries, but our health outcomes lag those other countries.

Prices for hospital care and drugs are driving up healthcare spending. Hospital spending is the largest portion of Connecticut per person health spending, followed by physician/clinical care, and drugs. Hospitals were also the largest contributor to rising per person healthcare costs in Connecticut.

Implementation of the Affordable Care Act had little impact on the total costs of care across all Connecticut residents. However, after the ACA private plan costs grew faster while Medicaid, Medicare, and consumer out-of-pocket cost growth slowed.

Healthcare Costs Deeper Dive

How much are Connecticut’s healthcare rising?

Health insurance premiums are rising far faster than household incomes, in Connecticut as in the rest of the country. Between 2008 and last year, Connecticut median household incomes averaged 1.9% increases annually, while single and family plan premiums in our state averaged 3.8% and 4.6% hikes, respectively.

And it’s not just squeezing family budgets, but also government and business spending. It’s displacing other important economic priorities like education, business investments, wage increases, and public health, which could bring down costs by preventing diseases.

What’s driving up costs?

Rising healthcare costs, in Connecticut and nationally, are driven by higher prices for new drugs and treatments, growing wasteful administrative costs, and consolidation of the entire healthcare market creating monopolies that can jack up prices.

Prices are the problem — Numerous studies have found that prices for healthcare services are rising far faster than utilization.

From 2017 to 2021, CT employer sponsored healthcare spending for inpatient care rose 21% while utilization of care dropped by 2%. Spending also rose faster for healthcare professional services and prescription drugs than utilization from 2017 to 2021.

There is great variation in prices for equivalent healthcare in Connecticut. A 2022 investigative report by a journalist at Hearst CT newspapers found that prices paid by different insurers at different hospitals varied widely. The price of a first trimester ultrasound varied from $53 to $1,164 between hospitals but Cesarean section birth prices varied from $1,040 to $8,274 at the same hospital depending on who is paying.

Across the state, growth in the cost per hospital discharge from 2015 to 2019, adjusted for the health of the patient and the complexity of their conditions (CMAD), varied more than ten-fold between hospitals.

Research is also clear that, unlike in other parts of the economy, better quality care doesn’t correlate with higher prices in healthcare.

Rising hospital services are the largest driver of rising healthcare costs — Hospitals account for both the largest share of Connecticut per person healthcare spending and the largest contributor to increasing costs. From 2005 to 2019, hospitals were about a third of per person spending in our state but were responsible for almost two thirds of the increase in costs.

How much does Connecticut pay for healthcare per person?

Connecticut residents spend more on healthcare than most Americans, but our costs are similar to nearby comparator states with similar demographic profiles. The orange bar below is Connecticut and green bars are comparator states MD, MA, NH, NJ, NY.

In good news, Connecticut’s per person healthcare costs are growing much less quickly than other Americans’ and for residents of comparator states. From 2013 through 2019, Connecticut’s per person costs grew at annual rate of growth was 1.8%, lower than all but eight other states. In 2014, Connecticut residents paid the seventh highest per person healthcare costs; by 2019 we were eleventh among states.

Are we getting what we pay for?

No.

The latest federal National Healthcare Quality and Disparities Report from the Agency for Healthcare Research and Quality is not flattering for Connecticut. Across 159 measures of quality, Connecticut was above the US average on 39, below average on 38, and average for the remaining 82. In worse news, we aren’t getting any better. Compared with baseline years for each measure (which varies), we improved on just 13, got worse on 39, and 102 didn’t change.

Over the last century US life expectancy had been rising, but it reversed course in 2014 and is now declining, even before COVID. The US is now far behind other developed countries in health status. Americans live four years less than residents of other developed countries, on average, but we spend 177% more per person on healthcare than other countries. Six in ten Americans rate the quality of care in the US as only average or below average compared to other countries.

How does spending vary by who is paying?

Connecticut per person costs are about evenly divided between private, Medicaid, Medicare, and out-of-pocket spending.

Medicare leads Connecticut in per person healthcare spending growth. Unlike prior years, Medicaid cost growth is ahead of private plans.

Like most comparator states,  Connecticut per person health spending is higher for private coverage than government programs and out of pocket payments.

Connecticut growth in per person spending is different than comparator states – lower for private plans and out of pocket costs, but unlike prior years, higher for Medicaid.

How did the Affordable Care Act change Connecticut’s healthcare costs?

While the Affordable Care Act led to coverage for 126,000 more Connecticut residents, it had little impact on the total rate of growth in per person health care costs. Connecticut’s per person costs were growing fastest before the 2008/2009 recession.

However, while Connecticut’s total costs grew less quickly after implementation of the Affordable Care Act, the impact was not equal between payers. Private plan costs grew faster after implementation while Medicaid, Medicare, and consumer out-of-pocket cost growth slowed.

Where does the money go?

Hospital spending is the largest portion of Connecticut per person health spending, followed by physician/clinical care, and drugs.

Hospitals were also the largest contributor to rising per person healthcare costs in Connecticut.

Recently, Connecticut per person spending on hospitals has grown faster than most comparator states, while, unlike in the past, drug spending has grown more slowly.