Tracking Health Care Costs: Spending Growth Slowdown Stalls in 1st Half of 2004
By Bradley C. Strunk and Paul B. Ginsburg
Employee Benefit Research Institute and Center for Studying Health System Change - December 2004
The recent slowdown in health care spending growth stalled in the first half of 2004 as health care costs per privately insured American increased 7.5 percent-virtually the same rate of increase as in 2003.
Implications
Early 2004 health care cost data suggest the decline in spending growth has stalled and may be ending long before reaching the lower trend for overall economic growth, let alone the very low rates of health cost growth seen in the mid-1990s. Moreover, given the sluggish recovery of the U.S. economy in recent months, it is unlikely workers’ incomes will grow as rapidly in the second half of 2004 as they did in the first half, meaning the gap between income and health care cost growth may again be large.
Once again, this makes it more likely that the number of uninsured Americans- who receive fewer health care services and are in poorer health than those with health insurance-will continue to grow. Growth in health insurance premiums will likely slow somewhat in the coming years as a result of the recent slowdown in cost trends and an expected turn in the health insurance underwriting cycle, the insurance industry’s interdependent pattern of profitability and pricing. However, the premium trend is unlikely to fall much below the underlying cost trend in the short run and is determined almost entirely by the cost trend in the long run. Clearly, there is a continuing strong need for a candid public discussion about how to control underlying health care cost growth-not just how to make health insurance more affordable.
At the moment, the main tool to control costs remains greater financial responsibility for patients, whether in the form of higher cost sharing in health maintenance organizations (HMOs) and preferred provider organizations (PPOs) or through so-called consumer-directed health plans, which typically include a high deductible and an account to draw on to pay medical bills. These tools could encourage consumers to use health care services more judiciously, particularly over time. However, the most common patient financial incentives, such as deductibles, copayments and coinsurance, are often too crude to allow distinctions between needed and more discretionary care, how efficient health care providers are and how much of a financial burden some patients can afford. The result is a high potential of barriers to care for people with low incomes or high medical needs. This will limit the extent to which these tools can be used without sacrificing to an unacceptable degree the basic reasons for health insurance-access to needed care and financial protection.
Meanwhile, little attention is being paid to the most important long-term driver of health care costs-new medical technology and its enthusiastic acceptance into mainstream medical practice. Measures that can be taken to control this relentless force, such as greater adherence to evidence- based medicine, increased research on medical effectiveness and greater use of technology assessments, generally have received short shrift from policy makers. When the limitations in the extent to which patient financial incentives can be used become more apparent, policy makers may increase their interest in these and other measures designed to improve efficiency in the health care system.
Report available at either website:
http://www.ebri.org/EBRI_Notes_12-2004.pdf
http://www.hschange.org/CONTENT/721/?#ib6
Comment: A beneficent, public, monopsonistic purchaser of health care services could certainly improve efficiency in the health care system. Are there really any other practical options? If so, let’s look at them now. Waiting to observe the limitations in the extent to which patient financial incentives can be used will only result in more unnecessary disability and death.