The Paradox of Medical Costs During the Pandemic

By and ·June 30, 2020
Harvard T.H. Chan School Of Public Health and Harvard Medical School and Willis Towers Watson

The Issue:

As COVID-19 began to rapidly spread in the United States, many experts suggested that medical costs would rise substantially due to the pandemic. They projected high costs from long and expensive hospitalizations for those seriously affected by the virus, especially in hot-spots throughout the country. Paradoxically, however, medical costs seem to have gone down substantially — at least in the short term. This is because non-COVID expenditures have dropped sharply. Patients have not obtained non-emergency care, ranging from screening and immunization to chronic care visits and surgery. Some of this care will be delivered later, but some will never be made up. Even as communities decrease pandemic-related restrictions, patients may remain reluctant to obtain non-urgent medical care. Such a drop in medical expenditures is extremely rare: total U.S. health expenditures per capita have increased every year since at least 1970, including during the recession of 2008-9.

Medical costs dropped in the short-term, as non-COVID care was deferred. Huge uncertainties exist regarding future trends in costs.

The Facts:

  • Demand for non-emergency medical services has fallen dramatically during the pandemic. Preliminary first quarter Gross Domestic Product reports show that almost half of the total decrease in GDP is due to reduced health care spending. Most hospitals stopped doing elective surgeries, dentists closed, and people were deterred from going to their doctors because of fear of contracting COVID-19. For instance, a large electronic medical record company reported steep drops in mammography (94%), colonoscopy (86%) and pap smears (94%), (see here). Although we did not include dental costs in our study, it is relevant to consider that the American Dental Association projects that dental care could decrease by 66% in 2020, and 31% in 2021. The decrement in non-COVID care is dramatically larger than modelers initially expected, and it has been bigger than the COVID-19 related expenditures. In other words, though certain types of medical care increased to cover COVID-19 patients, the decrease in non-COVID medical care more than offset this increase.  
  • Much of the deferred care driving the drop in U.S. health expenditures may never be delivered at all. Some acute care will not be necessary when restrictions are lifted, as symptoms may resolve on their own. Interval office visits for chronic disease will not be "made up." Patients suffering from common colds, aches, and pains that would have prompted a doctor’s visit will persist or improve without intervention. Much missed surgery will be performed in the future, but even for procedures there might be some limits to "catching up." For instance, colonoscopes must be cleaned, so the volume of colonoscopies can go up only if gastroenterologists work additional hours. This impacts the period of time over which deferred care, once it starts again, can be supplied. Further, to the extent a subsequent wave of infection occurs, it will be increasingly likely that care deferral will span both 2020 and 2021. Still, we don't expect to see costs rise materially in 2021 to account for the medical care not delivered in 2020. However, a decrease in childhood vaccination rates could lead to higher future costs, as these vaccinations save over $10 per dollar spent. Preliminary reports show large drops in administration of pediatric vaccinations, which could lead to more illness and thus higher future costs.  
  • Forgone care means that for the most part, health care spending will decline, but it also likely means worse health outcomes because people are not receiving the care they need. Some care will never be delivered because it will be too late. Failure to diagnose cancer earlier, or failure to adequately treat hypertension or diabetes, will lead to worse clinical outcomes and higher ultimate costs in some instances. If diagnoses are too late, when curative therapy is no longer possible, people who may have survived may die. These outcomes will perversely save money over the entire population because such care will never be delivered. Furthermore, though injuries related to athletic activities are down because of quarantine measures, other health issues like strokes and heart attacks have not stopped occurring during the pandemic. One estimate says emergency room visits were down 42 percent nationwide in April 2020 as compared to April 2019. This drop is probably attributed to people’s fears of contracting COVID-19 in a hospital. Heart attacks and strokes are very common, but it seems that patients are not calling 911 as frequently, so hospitals never see them. Visits from children requiring emergency help for conditions like asthma are also down. There may be an equity concern here, as well: people who use the emergency room because they lack access to primary care and telemedicine might be disproportionately affected if they avoid hospitals. 
  • Healthcare expenditures could increase in some areas following COVID-19, such as long-term complications for COVID-19 survivors and higher rates of mental illness in the general population. Lung scarring could lead to long-term disability in those who survive COVID-19 mechanical ventilation, which could increase the total cost of care. This will be devastating to some survivors, although the total number of those affected who are insured through employers or individual insurance purchase will be small. Some COVID-19 survivors also report fatigue, memory loss, difficulty concentrating, and other neurologic problems; it’s not clear how long these symptoms will persist. The pandemic is also leading to an increase in mental illness and emotional health needs. The U.S. Census Department recently reported that one in three Americans is suffering from depression or anxiety now, a dramatic increase since they last asked this question in 2014. But mental health services remain in short supply so increased need is not likely to lead to substantially higher total medical claims cost unless the supply of such services increases. 
  • The future healthcare costs of COVID-19, including vaccine production, drug therapy, and patient treatment, are difficult to estimate. The pandemic introduces huge uncertainties for the future. A subsequent wave of infection could lead to a new spike in costs in the future, and these could be higher if the rate of infection increases. We do not know the future cost of drug therapy, which might be effective for coronavirus treatment or prevention, nor do we know the timing, cost or financing of a vaccine. There is great uncertainty about medical costs, whether or when there will be future waves of disease, or how serious and costly those waves will be. It is possible that treatments will improve care and lower costs, although new drugs that decrease hospitalizations and improve outcomes are likely to be priced to reflect their very high value. 
  • COVID-19 may be bringing about long-lasting changes in the provision of health services, such as widespread adoption of telemedicine, which could affect medical expenditures in the long term. Virtual medical care, delivered by telephone, video, or mobile application, has gained substantial traction during the pandemic. Virtual visits were up from under 1% to about 14% of total visits in mid-April, and included both medical and mental health care. This could help improve access and lower future costs, although this depends on whether tele-health continues to substitute for in-person care, or whether providers resume their previous in-person utilization in addition to continuing to deliver and bill for more virtual care.

What this Means:

Paradoxically, the COVID-19 pandemic has led to a dramatic reduction in the consumption of medical care. While it was expected that the health crisis would bring more economic activity to the health sector, COVID-19 has shown the opposite to be true, at least in the short-term. Perversely, though the omission of care has lowered total medical costs, this is partly because some people perish without otherwise-expensive intervention. The COVID-19 pandemic is also having profound impacts on the provider community. The healthcare sector lost 42,000 jobs in March. Many provider organizations face insolvency due to decreased volume, and we will likely see provider consolidation, which could raise prices. Hospitals shutting down will also raise accessibility issues for consumers. Looking forward, it is unclear exactly when or to what extent health expenditures will rebound. This is hard to predict because even if services are available, people may remain reluctant to use them for fear of contracting the virus and we do not know when or if treatments, a vaccine, and subsequent waves of the virus will arrive. This period of a historic decline in medical expenditures may reshape the industry, including having possible enduring effects on how medical care is delivered, what types of payment models are used, and how accessible healthcare is across different populations.


Coronavirus / Health Care
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
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