Rising health care costs are not going away

Washington -- The outlook for future health care costs just got a little grimmer in the estimated $1.8 trillion industry. Based on 2003 data, economists had a glimmer of hope that health care spending growth had begun to relent after several years of record-level increases. But now that 2004 numbers are available, it seems that spending growth has plateaued, economists from the Center for Studying Health System Change said.

"Unfortunately, the good news of one year ago that health care cost trends turned downward has now been replaced by the bad news that trends stabilized in 2004 at a relatively high rate of growth," they write in a Health Affairs Web exclusive; the abstract is available free (link)

The article, which tracks the rate of growth among people with private health insurance, shows spending growth fell from 10.7% in 2002 to 8.4% in 2003. But it only slid to 8.2% in 2004.

Spending on hospitals accounted for 54% of that 2004 spending growth, the report said. Prescription drugs accounted for 21% of the increase, despite making up a relatively small proportion of total spending. Money spent on physician care accounted for 24% of the overall health care spending increase, even though spending on doctors grew at a slower rate than spending on other health care entities.

Spending on physician care per privately insured person increased 6.4% in 2004, the same rate of growth as in 2003, the study showed. That's compared with an 11.3% increase in hospital outpatient care spending, which was the fastest growing category of health care spending in 2004.

The slower physician spending growth rate, the experts said, is in part due to the fact that the prices doctors charge for their services have not changed much over the years.

"In response to an emphasis on broad networks in managed care, hospitals regained a lot of leverage with insurers, and started getting much higher prices," said Paul Ginsburg, PhD, president of the center and one of the report authors. "But we have not seen that pattern for physicians. The physician price trends were low five years ago, and they've stayed low."

Except for a few large group practices, health plans give most physicians little more than take-it-or-leave-it offers, he said. "If there are only a few hospitals in a community, the plans feel pressure to include all of them in their networks, but there has never been pressure to include 100% of the physicians," Dr. Ginsburg said.

Despite the study's findings, Dr. Ginsburg said increases in health insurance premiums still can be expected to slow down for the next year or two. That's due in part to the natural underwriting cycle and in part to the fact that insurance premiums often lag behind health cost trends, he said.

Still, the problem of high health care costs isn't going away any time soon, said Karen Pollitz, project director at the Institute for Health Care Research and Policy at Georgetown University in Washington, D.C.

As long as the increase in health spending continues to rise faster than the growth of other economic indicators, such as the gross domestic product, health care is going to be increasingly less affordable for the average American, Dr. Ginsburg said.

Several studies recently have documented the impact on low-and middle-income families. There has been troubling rollbacks in employer-based coverage, with Medicaid taking up some of the slack. But the number of uninsured has continued to climb by about 1 million individuals a year.