Summary: Health care affordability describes whether a person or organization has sufficient income to pay for or provide for health care costs and not significantly impede their ability to purchase other important services.
Improving Affordability Through Health And Wellness And Improved Efficiency: An Overview
As we enter a presidential election year, health care reform continues to be a key talking point for all of the candidates. Today's major health care issues are much like those of the past, just exacerbated with today's financial uncertainties. The ever-escalating costs above and beyond the rest of the economy, the growing uninsured and related health care access issues, and ongoing quality of care concerns dominate the dialog. These critical issues can be captured by a few poignant questions:
This series focuses on proposed answers to the above questions and integrates current information with updated research and analysis presented by the author on these important topics.
Affordability, particularly health care affordability, has been misunderstood and oftentimes confused with cost. Affordability is best defined as a measure of someone's or something's ability to purchase a good or a service. It describes whether a person or organization, with limited resources, is able to make a purchase without unacceptable or unreasonable sacrifices. It assumes there is a limited amount of resources to purchase life's necessities.
Health care affordability describes whether a person or organization has sufficient income to pay for or provide for health care costs and not significantly impede their ability to purchase other important services.
Housing affordability is often defined in terms of the ratio of how much it costs to purchase the median-priced home in a particular marketplace (i.e., mortgage payment with 20% down) to the average income in that particular market. For example, if the median price for a new home is $500,000, an 80% mortgage would be $400,000. The monthly payment for that mortgage at 6% interest would be about $2,400. If the average annual income in that community is $75,000, one metric of affordability would be as follows:
($2,400) / ($75,000 / 12) = .384 or 38.4%
This says that 38.4% of the average person's gross income is required to pay the mortgage payment for the median house. If another region has a lower ratio, their housing would be more affordable, and vice versa.
Health care affordability could be defined in a similar way: how much does health care cost divided by how much is available to spend on health care?
Several years ago Axene Health Partners, LLC developed an index to quantify health care affordability known as the AHP HCAI™ (i.e., AHP Health Care Affordability Index). The AHP HCAI™ measures the relative affordability of health care for individuals, sponsoring organizations, and the government by comparing both health care costs and available income. The ratio of cost to income provides a valuable metric of affordability. Once normalized to an average or standard affordability level (i.e., 1.00 or 100%), it is possible to compare one region with another, one sector to another, one stakeholder to another, etc.
To reflect all health care stakeholders, the AHP HCAI™ reflects an average of health care affordability for each of the three key health care purchasers — employers, employees, and government entities. Each component of the AHP HCAI™ can be reviewed individually to measure affordability for each stakeholder.
Importance Of Affordability
A metric such as the AHP HCAI™ can be used to better understand variations in affordability, key drivers to affordability, and what can be done to improve the situation (i.e., make health care more affordable).
When health care is not affordable or needs to be more affordable, individuals have to make hard choices, especially in challenging economic times. With high gas prices, high home foreclosure rates, a tenuous economy, a downturn in the building industry, an unstable stock market, and many other factors, many individuals and families are struggling financially. People are asking very hard questions about how they will balance their family budget.
Opting out of health insurance entirely is an increasingly more popular option that is raising the number of uninsureds. Fewer employers are offering insurance since they have more difficulty funding it. States are cutting down on some of their fringe programs which further increase the number of uninsureds.
The growth in the number of uninsureds focuses much attention on the access to needed care. Without insurance, individuals cannot afford needed medical care and often delay care until it can no longer be delayed, oftentimes leading to more expensive, urgently-needed treatment.
The affordability of care has a significant impact on many of our concerns about health care.
David Axene collaborated with Nicholas Yphantides in writing this series of articles. Dr. Nicholas Yphantides serves as the Consulting Chief Medical Officer for San Diego County and is the National Director for Health & Wellness with Axene Health Partners. He is a cancer survivor and is an advocate for those in his community who need it the most. For nine years, Dr. Nick served as Chief Medical Officer of one the largest network of Community Clinics in San Diego County.
David Axene started Axene Health Partners in 2003 after a successful career at Ernst & Young and Milliman & Robertson. He is an internationally recognized health consultant and is recognized as a strategist and thought leader in the insurance industry. He earned an MS Degree in Applied Mathematics from the University of Washington and a BS degree in Physics and Engineering from Seattle Pacific University.
More articles, videos, and podcasts by David Axene:
19 Specific Taxes Directly Related To Healthcare Reform
So What Is the Actuarial Value Of My Health Benefit Plan?
Medicare Implements Value-Based Purchasing
The Insurance Rate Public Justification & Accountability Act - Does It Get To The Real Problem?
Affordability, Effectiveness, and Wellness, Part 5
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