Recent Slowdown of U.S. Health Care Spending Increases Possibly Over, Report Finds
Health spending per privately insured U.S. resident increased 7.5% in the first six months of 2004 -- approximately the same rate as the previous two six-month periods -- possibly indicating a leveling off of the recent slowdown in health care spending increases, according to a new study by the Center for Studying Health System Change and the Employee Benefit Research Institute, the AP/Detroit News reports (Agovino, AP/Detroit News, 12/2). The study examined data on payments to care providers for services generally covered by private insurance, including hospital care, physician services and prescription drugs (Fuhrmans, Wall Street Journal, 12/2).
The health spending growth in the first half of 2004 was driven largely by increased spending on hospital services -- which make up the largest portion of health costs -- the report says. Spending on hospital outpatient services rose 11.4% in the first half of 2004, while spending on hospital inpatient services rose 5.1% (AP/Detroit News, 12/2).
Admissions and use of hospital services have increased less than 1% since 2003, but hospital prices increased at an annualized rate of 7.7% in the first six months of 2004, down slightly from the 8% increase in 2003, according to the report. The rise in hospital prices was fueled in part by labor costs because of the nationwide nursing shortage, as well as lower Medicare and Medicaid payments (Wall Street Journal, 12/2).
Caroline Steinberg, an executive with the American Hospital Association, also attributed the increase in hospital spending to improvements in medical care and technical advances.
Dallas Salisbury, CEO of the EBRI, said the rise in hospital spending is related to a hospital construction boom (Abelson, New York Times, 12/2).
Although prescription drugs traditionally "have been a lightning rod for rising health care costs," spending growth for prescription drugs continued to moderate in the first half of 2004, the study found, according to the Journal. Spending on prescription drugs increased at an annualized rate of 8.8%, down from a 9.6% rate in the second half of 2003, according to the study. The moderation seems to be tied to a slowdown in prescription drug price increases, which grew 3.1% during the first half of the year.
The Journal reports that the slower drug inflation reflects a rise in use of generic medications, as well as the growing use of tiered drug copayments (Wall Street Journal, 12/2).
Health spending growth peaked at 10% in 2001 and then slowed in 2002 and 2003, with an increase of 7.6% in the second half of 2003, the AP/News reports (AP/Detroit News, 12/2). According to the New York Times, health spending growth peaked after stringent HMO rules were relaxed (New York Times, 12/2). Growth slowed in 2002 and 2003 because of efforts by employers to shift costs to employees, according to Paul Ginsburg, study co-author and president of HSC (AP/Detroit News, 12/2).
However, those efforts have had only minimal effect, and "[w]hatever ability that shifting costs onto employees had in reducing [health spending growth has] probably already run its course," Ginsburg said (Wall Street Journal, 12/2). "We have leveled off at a place that is problematic," he added, noting that the current rate of increase in health spending growth outpaces the annual inflation rate.
Ginsburg said, "There is just not much optimism that we know how to control costs" (AP/Detroit News, 12/2).
Uwe Reinhardt, a health economist at Princeton University, said, "I just don't see anything in the wings."
Helen Darling, president of the National Business Group on Health, added, "The underlying cost drivers are really, frankly, terrible" (New York Times, 12/2).
Study co-author Bradley Strunk, a researcher at HSC, said, "The growth will remain consistent until there is some kind of major change in the health care system, and there doesn't appear to be anything like that on the horizon" (Quinn, Dallas Morning News, 12/2).
Arnold Milstein, medical director of the Pacific Business Group on Health, added that the trend of more people receiving care in emergency departments means hospitals have little ability to control rising costs (New York Times, 12/2).
The report "calls for public debate on controlling" health costs, noting that continued increases will drive up employer and employee health insurance premiums and could increase the number of uninsured as coverage becomes less affordable, the Dallas Morning News reports. Strunk said, "The bottom line is this: There will be a continued trend of reduced employer-sponsored coverage and more underinsured and uninsured in this country. Over the long term, what needs to happen is we need to address the underlying drivers of health care spending and not just find ways to shift costs from one party to the next. We are finding new ways to treat people, but there isn't consideration as to whether or not the new advances bring more benefits for the costs" (Dallas Morning News, 12/1).
Leah Rummel, executive director of the Texas Association of Health Plans, suggested introducing more health plans that give consumers more options, such as coverage that does not "have bells and whistles but cover[s] everything someone needs in case of emergency" (Knight Ridder/Baltimore Sun, 12/2). The study is available online.