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Increased Use of Services and Higher Prices Fuel 2001 Hospital Spending Increases

Overall 2001 Health Care Costs Register Biggest Jump in a Decade

News Release
June 18, 2002

FURTHER INFORMATION, CONTACT:
Alwyn Cassil: (202) 264-3484

ASHINGTON, D.C.—Strong demand and higher prices for hospital care helped drive overall 2001 health care spending increases to the highest level in a decade, economist Paul B. Ginsburg, Ph.D, president of the Center for Studying Health System Change (HSC), told Congress Tuesday.

Overall health care costs increased 8.7 percent in 2001, compared with a 7.3 percent increase in 2000, Ginsburg told members of the House Education and Workforce Subcommittee on Employer-Employee Relations. A copy of Ginsburg’s testimony is available here. HSC is a nonpartisan policy research organization funded exclusively by The Robert Wood Johnson Foundation.

Spending for inpatient and outpatient hospital care accounted for almost half of the overall cost increase, Ginsburg said, estimating that 38 percent of the 2001 hospital spending increase was due to higher prices for care, while 62 percent of the increase was due to increased use of services.

"Important drivers of health care costs at this time include advances in technology, the lagging impact of increases in per-capita income, the retreat from tightly managed care, provider consolidation, and shortages of nurses and other skilled personnel," Ginsburg said. "Surprisingly, the aging of the population is a relatively small driver of cost trends."

While medical technology advances are far and away the most important cost driver over time, changes in people’s incomes affect cost trends in the nearer term, but with a substantial lag. When incomes rise, people tend to spend disproportionately more on medical care.

"The rapid growth in people’s income during the late 1990s is likely a major factor in today’s high health care cost growth," Ginsburg said. "Rapidly rising health care costs are the hangover from the party now that the economy is sluggish."

The journal Health Affairs has published Ginsburg’s annual analysis of the underlying health care cost trends driving insurance premium trends for privately insured people, and Ginsburg’s full analysis of 2001 health care costs is scheduled for publication by Health Affairs later this year.

While prescription drug spending continued to grow at the largest annual rate, in both 2000 and 2001, hospital spending replaced prescription drugs as the most important driver of overall cost growth because a much higher share of health spending is for hospital care, he said. A 5.6 percent increase in inpatient hospital spending in 2001 continued an "enormous turnabout" from the mid-1990s, when inpatient spending declined year-to-year by as much as 5.3 percent.

Health insurance premiums also are rising more rapidly this year, Ginsburg reported. While the "most reliable surveys" of 2002 average premium increases have not yet been released, the increase is likely to be about 13 percent, up from an 11 percent increase in 2001, Ginsburg said, adding that the 2002 increase is likely understated because it does not reflect increased patient cost sharing incorporated into employers’ 2002 benefit plans.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded exclusively by The Robert Wood Johnson Foundation and affiliated with Mathematica Policy Research, Inc.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. For more information, contact Jon Gardner at Health Affairs at (301) 656-7401, ext. 230, or via e-mail, press@healthaffairs.org.

 

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