At $320B a year, we can’t ignore the cost of health inequities

By Andy Davis, FSA, MAAA, principal, and Yale Yoon, MBA, manager, Deloitte Consulting LLP

Over the past month, our report on the Economic cost of health disparities has been covered by quite a few industry news outlets; we have also heard from many of our health care and life sciences clients. We are not surprised this topic is resonating. Many studies and articles have explored the challenges that some people face when seeking care, but the actual per-person cost of health inequities typically isn’t quantified.

It has been widely reported that Black, Latino/a, and other people of color experienced higher rates of COVID-19 infection and death compared to white Americans. Black Americans are more than twice as likely to die from COVID-19 than white Americans.¹ Historically marginalized people are also being disproportionately affected by new variants of the disease.² But look at virtually any disease state—from diabetes to heart disease to mental health—and you are likely to see differences in prevention, early detection, access, and treatment quality based on three significant forms of biases: socioeconomic (including class), racial (including culture and language), and gender.

Based on our analysis of several high-cost diseases (e.g., breast cancer, diabetes, colorectal cancer, asthma, cardiovascular disease) we determined that health inequities cost the US $320 billion a year. Consider these two examples:

• Diabetes: The US spends $327 billion a year treating diabetes. Black adults are 60% more likely than white adults to be diagnosed with diabetes and two to three times more likely to have complications. Racial inequity often contributes to a late diagnosis and comorbidities. Avoidable costs: $15 billion a year.
• Asthma: The US spends $5.6 billion a year treating asthma. Misdiagnoses, late diagnoses, and challenges related to accessing the appropriate care and treatments account for 4.3% of total spending. Avoidable costs: $200 million a year.

While not everyone is directly affected by health inequities, the avoidable costs can affect us all. How much? About $1,000 per person per year, according to our estimates. And if health inequities aren’t addressed soon, this unnecessary spending could triple to $3,000 a year by 2040. For a family of four, this is essentially a $12,000 health care tax. In addition to the avoidable costs directly tied to disease, health disparities account for roughly $42 billion in lost productivity per year, not including additional economic losses due to premature deaths.

Is bias profitable?

“Bias is profitable” was the headline of Modern Healthcare’s June 23 article, which was based on our findings. It is hard to disagree with that conclusion given this country’s outdated health care payment model. Many hospitals and health systems in the US continue to rely on fee-for-service payments for the care they provide. This means they have little financial incentive to keep patients healthy and out of the hospital. Some communities have lower life expectancies and higher instances of certain diseases simply due to their Zip codes. Focusing on the drivers of health (e.g., housing, education, food, and physical environment) can have a significant impact on health, outcomes, and costs (see our report, Addressing the drivers of health.)

While bias might be unintentionally profitable for hospitals and health systems, there is little incentive for them to change. However, as the health care industry inches closer to value-based care payment models, health inequities will likely become a financial burden for health care stakeholders. Under that payment model, helping everyone achieve their health potential could translate to fewer health care services, less spending, and better margins for hospitals, health systems, and health plans.

If we are not part of the solution, are we part of the problem?

If we are not working to improve health equity, we might be a part of the problem...or at least fundamentally biased. That realization prompted us to build an actuarial model that tied a dollar figure to the cost of health inequities. For our framework, we relied on a study, Estimating the economic burden of racial health inequalities in the United States, which calculated both the direct and indirect costs of racial and ethnic disparities in health care. This was our foundation for quantifying health inequities and putting costs into business terms. We then expanded on that work and explored the cost of disparities across racial, ethnic, sex, gender, and socioeconomic status. Medical research has historically focused on the health of white men.

Some of the research was eye-opening for both of us. Consider this: Chest pain is the most common symptom of a heart attack in men, but it’s not always a symptom for women. Moreover, women are more likely than men to experience indigestion, shortness of breath, and upper-back or jaw pain when experiencing a heart attack. These symptoms, which could indicate a so-called silent heart attack, are often dismissed by both the patient and the physician.³

The uneven cost of treatment

Health equity is near the top of the agenda for many health care executives today. Many stakeholders want to make health more accessible and equitable because it is the right thing to do. While it is a moral issue, our analysis shows that an investment in driving down bias and inequity is good for business, too.

The US spends more than $3.8 trillion dollars a year on health care, or nearly 18% of the gross domestic product, according to the US Centers for Medicare & Medicaid Services Office of the Actuary. If left unaddressed, health inequities could add $1 trillion to overall health spending by 2040. Last year, we looked at some of the steps that should be taken to stabilize or even reverse current health care spending trends. Our report, Breaking the cost curve, showed how the current health care spending trajectory could be altered, resulting in $3.5 trillion in savings by 2040. Addressing equity is an important part of this model.

At this point, however, many organizations are just discussing health equity within their four walls. But transforming the health care system can’t happen in isolation. Organizations from each sector of the ecosystem—from health plans to health systems, from biopharmaceutical companies to clinical-trial operators, and from educational institutions to research and development professionals—should work collectively toward the common goal of ensuring that everyone has the same health opportunities and the same access to high quality care. Solving for this challenge will likely require intentional collaboration.

The path to progress

Health care stakeholders should consider acting now to mitigate these challenges. The collective action of all stakeholders could lead to a truly equitable future of health that could help transform the lives of many. Data should be collected, key performance indicators should be established, and progress should be monitored continuously. Stakeholders should also work to break down barriers including social, economic, and environmental factors that contribute to gaps in health outcomes. Maybe most importantly, the rebuilding and optimization of trust should be prioritized. Creating an equitable health care system can only be achieved if trust exists and all stakeholders work together toward a common goal.

The cost of health inequities will reach $1 trillion by 2040 if not addressed

Endnotes:

¹ COVID-19 cases and deaths by race/ethnicity, Kaiser Family Foundation, February 22, 2022 

² COVID-19 cases and deaths by race/ethnicity, Kaiser Family Foundation, February 22, 2022

³ What is a silent heart attack? American Heart Association, 2022

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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