Every year, employers get reports from their health plans, benefits consultants, and whoever manages their claims data warehouse trying to describe the contributors to employee health care cost increases. More often than not, there are pie charts and tables filled with numbers on various categories of services, major diagnostic categories, and geographic regions. Almost always these reports are heavy on the details and risk missing the forest for the veins of the leaves on the branches of the trees. That’s why, a couple of years ago, my colleagues and I at the Health Care Incentives Improvement Institute were asked by a large employer to make some sense of all these details and draw out a bigger picture.
While I was working for GE, in the days of Bob Galvin’s enlightened leadership, we learned to use waterfall charts as a way to help explain changes in costs. This slide combines two waterfalls into a third to tell a pretty compelling story on what contributes to changes in total costs of care for the employer.
The baseline was $1 billion, so the $140 million shown represents the cumulative total cost increase between the two periods in time, with an overall stable population size. So even as the underlying number of covered lives stayed the same, costs increased roughly 14% through the study period.
The upshot is that it’s about price, not use, and the majority of the price inflation came from inpatient stays. That surprised the consultants and health plans that had blamed an aging population, prescription medication, and chronic disease. At a glance, using a chart like this, any employer can figure out the main driver(s) of cost increases and where to focus their initiatives. That’s why it’s one of my favorite slides.