The Great Utilization Shift
By Christopher Kerns
Margin challenges have been afflicting both plans and providers—in different ways but for interconnected reasons. And it’s worth reflecting on why this is true, and how unusual it is. Historically, the usual tug-of-war from the payment/revenue cycle tends to more favorable to payers or providers in any given year. But over the past two years, a strange quagmire has developed: health plans have struggled with outlays that have exceeded their internal actuarial projections, and yet health systems haven’t benefited much from that utilization as margins have been under pressure since their recent high point in 2024. If care utilization is strong, why are provider margins anemic? That’s the question Union Healthcare Insight has been answering with our Future of Margins initiative. More on that in today’s inaugural edition of The Union Brief.
The answers are, of course, complicated. Changes in leverage between payers and providers. Continued upward pressure on labor costs, which shows no sign of seriously abating. New GLP-1 and oncology drugs upending the care models for millions of Americans. And of course the AI arms race in the revenue/payment cycle that is perversely raising costs while delivering no clear advantage to either health plans or health systems. And future editions will get into how to manage all of those issues. But at their heart, nearly all of these problems stem from an inexorable demographic reality that will inevitably reshape how Americans consume healthcare. We’ve dubbed it The Great Utilization Shift. It’s a dramatic name, but appropriately so. Behold the U.S. population pyramid:
As Boomers age into and, um, out of Medicare, their care needs change, often quite quickly. As Medicare beneficiaries age past 75 (the oldest boomers have turned 80 this year—shout out to my mom, who turned 80 in July), their care needs shift from procedural (ortho and cardiac implants and procedures, etc.) to medical (more inpatient admissions and long-term care management). For health systems, medical care is labor intensive, capacity-constraining, and not terribly profitable from a revenue-per-bed perspective. For plans, such care is not only less predictable, but also more-frequent, adding to unprojected outlays over time.
And Generations X and Z are no help here, I’m sorry to say as a [late] Gen Xer myself. There are not enough Xers to fill the procedural void as they begin to enter their prime procedural years (the oldest turned 60 last year). And their children, the much-discussed Zoomers, are also few in number, a major driver of continued upward pressure on nursing wages.
I’ll be getting into the specifics of the Great Utilization Shift in future editions. And the good news is that plans and providers are adapting—fitfully at present. But as we delve deeper into these challenges, I wanted to set the baseline cause of the margin challenges the healthcare industry today. What we face demographically is inevitable. How we respond to it is not.
