Morningstar - Q4 2020 - 36

Spotlight: World After COVID-19

Dollars to Doctors
How COVID-19 could reshape
healthcare spending.

HEALTHCARE

Susan Dziubinski

Healthcare isn't cheap. From consistent costs
like insurance premiums to unexpected events like
surgeries, healthcare spending consumes a
substantial portion of the typical U.S. household's
income: approximately 11% (or $8,200 per year)
for families without an elderly member, according
to the Kaiser Family Foundation.
It's also high for the elderly: Fidelity estimates that
over the course of retirement, the average
cost of healthcare for a 65-year-old couple is
nearly $300,000.1
So where are our dollars going? Taking into
account all sources of funding (including costs
covered by health insurance and Medicare),
hospitals and physicians/clinics absorb the largest
portion of healthcare dollars ( E X H I BI T 1 ).
But when it comes to our actual out-of-pocket
spending, consumers allocate more dollars
to physicians/clinics, dentists, prescription drugs,
and nursing care.
However, COVID-19 somewhat upset these
healthcare spending trends. KFF found that across
all healthcare services (excluding pharmaceutical
drugs), expenditures were down 38% in April
2020 compared with April 2019. Dental services,
hospitals, and physician's offices were hit the
hardest by this dip as homebound people delayed
elective procedures-a shift that also led to
increased telemedicine spending. On the other

hand, spending on prescription drugs continued
to grow during the pandemic.
But when COVID-19 is behind us, can we expect
these trends to revert, or will the pandemic
permanently change our healthcare spending? We
explore the long-term impact that COVID-19
may have on telemedicine, eldercare, and drug
prices-and what that means for how we
may spend our healthcare dollars in the future.
Healthcare Trends Support the Rise
of Telemedicine
Many warmed to the idea of virtual doctor
visits-whether via telephone or a
web-based solution-to avoid doctor's offices
during lockdowns.

The New York Times reported that nearly $4 billion
was billed nationally for telehealth visits during
March and April compared with less than $60
million for the same two months of 2019. That's
a 66-fold increase year over year.
"COVID-19 has definitely accelerated the adoption
of technology across all industries-and
healthcare is not an exception," Morningstar
healthcare analyst Soo Romanoff says. "We
probably observed a significantly faster adoption
in the last six months than in the last several
years as it was [often] the only method to interact
with providers."
Regulatory hurdles have been a headwind for
telemedicine historically, due to privacy laws and
liability, say the authors of a recent analyst note
from Morningstar subsidiary PitchBook.

During the pandemic, however, several steps
were taken to broaden telemedicine's capabilities.
For example:
gThe U.S. government waived Medicare's
limitations on telemedicine services, including
temporary reimbursement for services provided
through virtual appointments.
gThe U.S. government enabled registered
telemedicine practitioners to issue prescriptions.
gA number of insurers added temporary
telemedicine coverage to existing plans.
So, will telehealth displace traditional in-office
and hospital care longer term? Romanoff
says that we will not likely return to historical
levels for traditional care, but telehealth is unlikely
to completely displace in-person care for two
reasons: reimbursement and quality issues.
First, the reimbursement waivers will probably
expire after the pandemic. And physicians
and systems will want to see patients in their
facilities so they can be reimbursed at significantly
higher rates than telehealth. "Physicians will
want to connect with their patients in the interest
of continuity and consistency," Romanoff says.
"This aligns with a system that rewards providers
for quality and penalizes for poor care, such
as patients who are readmitted for the same
condition. So, it's in physicians' interest to
encourage patients to continue their care with
them in person."
Romanoff does think there may be more interest
in sticking with telehealth in areas such as
mental health. These types of appointments have
increased over the past few months as people
seek ways to decrease stress and anxiety during
the pandemic, and patients may want to
continue to conduct these appointments from the
privacy of their homes.
What does this mean for our healthcare
spending? Not much, because most people will
return to in-office visits with doctors. Any
additional consumer spending on telehealth is
unlikely to be significant.

1 Morningstar researcher David Blanchett has also explored healthcare spending during retirement. See "How Health Shocks Affect Retirement Spending" on Morningstar.com, Aug. 18, 2020.

36

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