Slow growth of health care utilization to linger through 2011, analysts say

A slower growth in demand for health care that took hold during the recession is likely to persist through 2011, experts say.

Health care industry analysts with financial services firm Credit Suisse and consulting agency PwC, formerly PricewaterhouseCoopers, released research in December 2010 saying that the slowdown in the growth of health care utilization shows no signs of reversing.

Spending on hospital care grew 5.1% between 2008 and 2009, the slowest pace it had in a decade, and spending on physician and clinical services grew by just 4%, according to National Health Expenditure data released Jan. 5.

Although national health expenditure data for 2010 aren't yet available, health insurance companies reported that their customers used less health care in 2010 than projected. Insurers attributed that in part to a lighter-than-anticipated flu season, but also to the economic slowdown.

Credit Suisse and PwC also credited the rise in adoption of high-deductible health plans as partly responsible for driving down health care utilization. In 2008 and 2009, the most common health plans had no deductibles, according to PwC's research.

In 2010, the most common employer-sponsored plans among companies surveyed by PwC had deductibles of between $400 and $999. Also in 2010, 13% of employers PwC surveyed said high-deductible plans had the largest enrollment out of all of the benefit options offered to employees, up from 6% in 2008.

Credit Suisse predicted that about 17% of health benefit plans would feature high deductibles, compared with about 13% by its calculation in 2010.

Meanwhile, 60% of consumers surveyed said they expect to continue to pay more out of pocket for health care.

High deductibles are expected have a negative "trickle down" effect on physicians and hospitals, the PwC report said.

"Research has shown that as consumers are forced to pay higher deductibles, they reduce utilization because they have nowhere else to shift their portion of the costs," the report said. "That's likely to be especially true in a slowly recovering economy. With coinsurance as with high deductibles, workers become more aware of the full cost of the drugs or services they're using and consequently would be more likely to shop around for, delay or avoid services."

Job loss also has been responsible for moderating the growth in spending on health care. Credit Suisse analysts wrote in an outlook report published in December 2010 that even if unemployment levels dropped in 2011, spending on health care wouldn't pick up for two years.

The Credit Suisse report is not available to the public, and analyst Charles Boorady, who leads the health care equity research team, was unavailable for comment. In the report, released Dec. 17, 2010, his team predicted that spending growth will remain close to 4.2%, down from a 7% average growth rate during the last five decades.

Physicians, along with pharmacies, are at the top of the list of those likely to feel the economic effects of the slower growth in demand for health care, according to PwC, which also did not have analysts available for comment.

Some see such a slowdown as positive, because government health care spending in particular had been climbing at such a rapid rate.

But the PwC report said the slowdown in the demand for physician services and drugs could lead to an economic and medical backlash, because delayed checkups and diagnoses could mean more expensive care when diseases are more advanced and neglected chronic diseases become acute conditions.

"The danger lies in whether short-term cost avoidance could lead to more expensive conditions in the long term," the report said.

However, health insurers appear to be counting on a rebound in demand. Health plan executives have said they set prices in 2011 based on what was once considered "normal" utilization trend.

"We expect consumer usage of the health system to rebound in coming quarters, resuming its upward growth pattern from the recent moderation in utilization growth," UnitedHealth Group CEO Stephen Hemsley told analysts while discussing financial results for the third quarter of 2010. "[We] will set rates and benefits in light of these likely forward trends."

Health insurance companies could benefit with higher profits -- the way they did in 2010 -- if their customers continue to delay seeing a doctor or getting elective surgeries to avoid paying out-of-pocket deductibles, co-pays and coinsurance.

Despite a drop in membership due to job losses and declining revenue, most of the largest health plans improved their profits in the first three quarters of 2010, thanks to lower-than-expected medical spending.