Preventive Care Savings?

Posted March 1st, 2017

Preventive Care Savings?


Preventive care is a wonderful thing.  It’s now embodied in federal law (Patient Protection and Affordable Care Act) and universally promoted and applauded by every professional medical association.  The Center for Disease Control (CDC), health insurance companies and others publish extensive guidelines for preventive care recommendations.  Preventive care has repeatedly been shown to save lives and is expected to produce a healthier population and workforce over time.  I avidly adhere to my preventive care guidelines and I hope you do.  Everyone should.


But what exactly are the financial outcomes?  What is the impact on the cost of the insurance product, putting aside there are certainly productivity savings with a healthier work force and immeasurable value to preventing the suffering of illness and saving human lives.


The fact is, many people in the business have lost the correct frame of reference for preventive care and have translated the value points of increased productivity, healthier population, and saved lives, into a conclusion that this is going to lower health insurance premiums.  The problem is, it might not happen.  As Mark Twain said, “It ain’t what you don’t know that gets you in trouble, it’s what you know for sure that just ain’t so”.


The Congressional Budget Office, for example, doesn’t believe it.  On August 7, 2009, the Director of the Congressional Budget Office (CBO) reported to a congressional committee inquiring as to the effect of expanded preventive care in regard to the reform legislation under review at that time, “the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending.”


They go on the explain, “That result may seem counterintuitive.  For example, many observers point to cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after it has progressed.

To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway.  Even when the cost of a particular preventive service is low, costs can accumulate quickly when a large number of patients are treated preventively.

In such cases, an ounce of prevention improves health and reduces spending – for that individual.  But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that doctors do not know beforehand which patients are going to develop costly illnesses.  To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway.  Even when the cost of a particular preventive service is low, costs can accumulate quickly when a large number of patients are treated preventively.  Researchers who have examined the effects of preventive care generally find that the added costs of widespread use of preventive services tend to exceed the savings from averted illness.”


This topic has been evident for decades.  In 2003, the New York Times published an article on the impact to increased cost of annual physicals.  They reported, “yet in a series of reports that began in 1989 and is still continuing, an expert committee sponsored by the federal Agency for Healthcare Research and Quality, an arm of the Department of Health and Human Services, found little support for many of the tests commonly included in a typical physical exam for symptomless people.”[1]


In spite of this long history of these observations supported by research, the leaders of major national consulting firms continue to promote preventive care as part of a strategy to reduce costs – and publishing articles to that effect in major trade journals.  The medical directors of major insurance companies are presenting low take-up rates of preventive regimens as cause for high costs.  Data analytic firms and care management experts are utilizing claim data to carefully monitor compliance rates of available routine tests and other similar procedures and implying low compliance is cause for concern and contributing to high costs.


Politicians embrace the idea of preventive care cost savings for the same reason that consultants do – it sells.  People buy it.  During the 2008 presidential primary, the candidates were all touting preventive benefits as a strategy to greatly reduce future health care costs.  Hillary Clinton, John Edwards, Mike Huckabee, Barrack Obama.  “These statements convey the message that substantial resources can be saved through prevention,” writes three researchers (Cohen, Neumann, and Weinstein) in the New England Journal of Medicine in February 2008 while complaining about the over-reaching statements of the politicians.  “Although some preventive measures do save money, the vast majority reviewed in the health economics literature do not”.  Their research considered 599 peer reviewed published articles.


In March 2012, the fact-check organization rated President Obama’s statement that preventive care saves money as “FALSE”.  “But while there’s little doubt that preventive care saves lives,” they wrote, “the money is a different story. In general, academic studies do not support the idea that paying for preventive care ultimately saves money.”


It seems everyone is swept up in the message of lowering insurance costs with preventive care in spite of evidence to the contrary.  Experts should be setting the record straight.  We should be promoting preventive care, but reminding employers and others there will be a cost increase in medical insurance for all this.  Savings may ultimately come from other avenues such as healthier workers, productivity gains, and lower disability rates, but not health insurance.  Saving lives also has immeasurable value, but doesn’t suppress insurance rates one bit.


The drafters of the “Affordable Care Act” tossed aside the advice of the CBO and eliminated all co-payments for preventive care countervailing the very first letter of the acronym of the aforementioned law – “Affordable”.  If they wanted to make medical insurance more affordable, perhaps they would have been wise to dampen demand for preventive care.

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Preventive care ought to be honestly viewed for what it is – a small increase in your health insurance premium to achieve a much bigger and nobler goal – healthier people, more productivity from the workforce, and some elimination of suffering and death from preventable disease, but an increase in health insurance costs nonetheless.


Is research even needed to demonstrate the point?  How about some plausibility analysis?  Let’s jot down some reasonable assumptions about colon cancer and preventable treatments and think about whether savings are plausible.


People over age 50 are urged by the Center for Disease Control (CDC) Colorectal Screening Guidelines to get annual fecal stool test (FOBT), and or sigmoidoscopy every 5 years, and or colonoscopy every 10 years.

For sample costs in our plausibility study, we will use $100 for the FOBT, $300 for the sigmoidoscopy, and $2,000 for the colonoscopy.  Let’s consider a large employer with 10,000 employees between the ages of 50 and 65 in our plausibility analysis population.

What is the cost of all this screening?  If all the population follows one of the three paths urged by the CDC guidelines, we might have 2500 blood tests, 500 sigmoidoscopies, and 500 colonoscopies each year.  (That is, ¼ of the population opt for the annual FOBT, ¼ opt for the sigmoidoscopy every 5 years, and ½ opt for the more recommended colonoscopy option once every 10 years).  The annual cost for such a mix of tests at the recommended frequencies would be $1.4 million dollars annually ($14 million over a 10 year period).

Further, assuming anomalies and developing maladies are caught early, the subsequent treatment will add some expense.  This represents the “lower cost” of early treatment, so let’s round our number up to $1.8 million to include both the cost of testing and the subsequent “lower cost” of the developing polyps and such to be treated.

What would have happened without the testing?  The rate of incidence of colon cancer in this age group is about 85 per 100,000 people according to the CDC, or about 8.5 expected cases in our population of 10,000. 

How much can we save with the $1.8 million we spent to catch these early with preventive care and treat what we find?  It’s hard to say, but perhaps the screening might have prevented 6 (out of 8.5) cases of colon cancer otherwise undetected until well progressed, and these cases might have run up, say, $200,000 each of expense.  That’s $1.2 million of costs that were averted, but we spent $1.8 million to achieve this.

Net cost – negative $600,000 per year.  These figures illustrate the point made by the 2009 CBO report to Congress, that it’s hard to lay out a reasonable cost model that produces savings when you are spending money to treat 10,000 people in order to prevent 8 or 9 illnesses.

The analysis demonstrates the difficulty of incurring a modest cost across a large population with the possible return of preventing relatively few acute diseases and expecting to create net savings.


Readers who have better knowledge of such things are welcome to supply their own assumptions to test for plausibility.  Regardless, actuaries who are accountable for producing measures of actuarial value and insurance premiums go through these modeling exercises to figure the cost or saving from such activities and usually have difficulty painting pictures of how savings are supposed to occur from preventive care. What is the cost of the testing and what is the potential savings using some reasonable frequencies and other numbers as the illustration above attempts to do.  Is there a plausible path to savings?


You will notice there was no rush to lower insurance premiums after the ACA mandate to waive copays on preventive care even as the medical directors of the very same insurance companies and others are out urging the customers to use preventive care to lower their costs.  There’s clearly a disconnect between the financial people and the clinical people inside the insurance companies.


That’s not to say preventive care isn’t a wonderful thing.  Preventive care saves lives and probably will produce a healthier population in the long run.  Preventive care occasionally catches acute or chronic diseases in an early stage and can produces both spectacular savings for the affected individual and rescues some people from a terrible fate of disease or even death.   But, it costs a lot of money to do these wonderful things over a broad population, and in most cases, costs more money than it saves.


© 2017 Contribution Health Inc.