More math, how fun. In addition to understanding the cost of care, we need to understand how these costs are changing from one year to the next and overtime. You have probably seen or heard headlines about the annual change in healthcare costs and insurance premiums. We call the rate of change and medical costs, trend. Healthcare trend is a function of changes in utilization, unit cost, severity, and provider mix. This lesson will focus on these components of trend. Let's start with utilization changes. Utilization changes measure the change in the number of services provided. For example, if my father went to the doctor three times last year and four times this year, that would be an increase in utilization of one office visit or 33 percent. As a result of the higher number of office visits for my father and for others, healthcare cost will increase, which in turn means health insurance premiums will increase and depending on his out-of-pocket expenses, his costs may increase year over year as well. Unit cost changes reflect change in cost for a given service or a market basket of services. Inflation will often cause the cost of a given service, like a prescription drug, to increase annually. We measure the unit cost change on a static market basket of services to remove any noise that can occur due to changes in the mix of services, but changes in mix are also important and that will be captured in the severity component of trend. This measures increases or decreases in cost due to a change in the type or intensity of services provided. So, for example, my mother went to the hospital for an x-ray last year for a sore shoulder, and this year her shoulder still hurts and they order a CT scan or an MRI which costs quite a bit more than the x-ray. The cost for her healthcare increased year over year in a variety of ways. The payment for the doctor visit increased from last year by about three percent to account for annual inflation. On top of that, the cost of a CT scan is about double the cost of an x-ray. So, even though she had one imaging service each year, the severity and cost of that imaging service has increased. Provider mix measures the change in the mix of providers delivering healthcare services. It can be viewed as another form of severity. Provider mix can result if healthcare is provided in a setting that is more costly than an alternative setting. An example could be if a patient with a sore throat is treated in an emergency room rather than a doctor's office. Provider mix can also result when healthcare is provided by medical professionals that are paid higher fees than other medical professionals in an insurer's network. This can occur in situations where hospitals or physician organizations negotiate higher payment rates than other hospitals and physicians in the market, and if patients go to the higher cost providers even if for the exact same service, the cost will be higher. So, what does all of this mean? Let's look at two scenarios where severity and provider mix might be a contributing factor in the higher healthcare cost and trends. Clearly, there are a lot of complicated factors that cause healthcare cost to be high and to increase annually, and this is one example. Consumer demand aging, deteriorating health status, and limited coordination of care across various healthcare providers are drivers of utilization, severity, and provider mix trends. Inflation, provider consolidation, and cost shifting from insufficient government payers drive unit cost trends, and the introduction of new technology and new drugs to treat illnesses drive severity. Each of these impacts the various stakeholders differently. All of this affects the price of healthcare services which translates into higher insurance premiums and out-of-pocket expenses which ultimately impacts the patient.