Health Spending
Continues to Rise
At a Fast Pace
By VANESSA
FUHRMANS
Staff
Reporter of THE WALL STREET JOURNAL
December 2, 2004; Page A2
The rate of increase in the cost of health care
appeared to be stuck in an uncomfortably high gear in the first half
of the year, a new study shows.
The finding suggests that health costs may continue
to increase at unmanageable levels for employers and consumers. That
outlook is distressing, because until recently the rise in health-care
costs had appeared to be decelerating. The flattening of health-cost
increases suggests health-insurance premiums will continue to rise at
a similar pace.
Spending on health care commonly covered by insurance
-- including hospital care, physician services and prescription drugs
-- rose at an annualized 7.5% in the first half, the same rate as in
2003, according to price data analyzed by two nonprofit groups, the
Center for Studying Health System Change and the Employee Benefit
Research Institute.
The study uses data on what is paid to health-care
providers and for prescription drugs, not premiums paid by employers
or individuals for insurance coverage. Because insurance-premium rates
usually lag behind underlying medical-cost trends, premiums have
continued to moderate this year. A nationwide survey of employers
released last week by Mercer Human Resource Consulting, for instance
showed the premium per employee rose 7.5%, markedly slower than last
year's 10% increase.
The 7.5% rate on health-care spending is far higher
than the 1% to 2% growth rates of the mid-1990s, the last time
health-care spending ebbed. At the time, more restrictive Health
Maintenance Organizations, or HMOs, dominated health insurance,
bringing health-care spending briefly in line with overall inflation
and economic growth.
This time, however, there is no similar force in the
health-care system that could slow spending significantly, the study's
authors say. Though employers and health insurers have pursued a slew
of cost-containment measures, from disease-management programs to
shifting more of the cost burden onto employees, those efforts appear
to have only marginal effect.
"Employers have little optimism that they have any
real long-term solution to rising health-care costs," said Paul B.
Ginsburg, the study's coauthor and president of the Center for
Studying Health System Change. "Whatever ability that shifting costs
onto employees had in reducing the trend, it's probably already run
its course."
One big reason medical costs slowed in 2002 and 2003
was because those higher premium contributions and out-of-pocket
expenses forced consumers to switch to generic drugs or forgo a doctor
visit or other health-care service. As a result, employers' premiums
continued to moderate this year, climbing between 7.5% and 11%,
according to several recent nationwide surveys of employers. More
competition among health insurers, particular among not-for-profit
plans trying to reduce excess reserves, also has put pressure on
premiums.
Premium increases may slow somewhat again next year,
but they won't shrink much if medical costs don't slow any further. At
7.5%, health-care spending is rising at a considerably faster clip
than workers' income, a sure indicator that the number of uninsured
Americans will continue to swell, Dr. Ginsburg said.
Hospitals remain the 800-pound gorilla of health-care
costs, particularly the fast-growing segment of out-patient services.
While admissions and actual use of hospital services have risen less
than 1% since 2003, prices climbed at an annualized 7.7% in the first
six months of 2004, nearly as much as the 8% increase in 2003.
One factor in the higher hospital prices is labor:
Nursing shortages helped drive up hospital wages by 4.5% in the first
half. Dr. Ginsburg said earlier cuts in profit margins for Medicare
patients also may have prompted hospitals to shift more of the cost
onto private payers.
Though prescription drugs have been a lightning rod
for rising health-care costs, actual drug spending continues to
moderate. In the first half of the year, it climbed an annualized
8.8%, slowing from the 9.6% rate that prescription-drug spending rose
in the second half of 2003. Much of the slowdown appears tied to
prices, which increased a modest 3.1%. The relatively slow drug
inflation reflects the increased use of cheaper, generic drugs. The
growing popularity of tiered drug copayments, which force consumers to
spend more if they opt for expensive brand-name drugs, also may have
pressured drug makers to hold down prices, the study's authors said.
Write to Vanessa Fuhrmans at
vanessa.fuhrmans@wsj.com1
