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Health Care Spending Growth in 2003 Posts First Major Slowdown in a Decade
Despite Downtick, Health Care Spending Growth Continues to Outpace Economic Growth
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Editors Note: A webcast interview with Brad Strunk and Paul Ginsburg concerning this study is available courtesy of the Kaiser Family Foundation. Click here to view the webcast.
ASHINGTON, D.C.Health care spending per privately insured American increased 7.4 percent in 2003the first major slowdown in spending growth in nearly a decade, according to a study by the Center for Studying Health System Change (HSC) published today as a Web-exclusive article in the journal Health Affairs.
Despite the downtick, health care spending grew nearly twice as fast as the
overall economy, which increased 3.8 percent in 2003 as measured by growth in
per capita gross domestic product.
"Health care costs and premiums continue to grow much faster than workers income, making health insurance increasingly unaffordable for more and more people," said Paul B. Ginsburg, Ph.D., coauthor of the study and president of HSC, a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.
For the third straight year, consumers in 2003 faced significant increases in cost sharing as purchasers bought down the value of health benefits, primarily by increasing deductibles, copayments and coinsurance, where patients pay a percentage of the total cost of care.
"While employers are falling back on increased patient cost sharing to help slow health care cost growth, its unlikely that increased patient cost sharing alone will significantly slow cost trends over time," said Bradley C. Strunk, an HSC research analyst and study coauthor. "Research is clear that over the long haul the key long-term driver of medical cost trends is new technology."
Spending on inpatient hospital care increased 6.5 percent in 2003, down from 8.4 percent in 2002. Spending on hospital outpatient carewhich includes services provided by both hospital-based and freestanding outpatient facilitiesincreased 11 percent in 2003, down from 12.9 percent in 2002. Growth in inpatient and outpatient hospital spending in 2003 accounted for more than half of the overall spending increase (53%) for the third straight year.
The hospital utilization trend slowed sharply in 2003, signaling the completion of the transition to looser forms of managed care. However, hospital price increases accelerated for the sixth year in a row, increasing 8 percent in 2003, the largest one-year rise since measurement of negotiated hospital prices began a decade ago. Other key findings include:
The study analyzes per capita spending on health care servicesinpatient and outpatient hospital care, physician services and prescription drugscommonly covered by private insurance, which is primarily employer based. Per capita health care spending trendsalso often referred to as cost trendsare important because they largely determine long-term health insurance premium trends.
In recent years, premium growth has outstripped growth in underlying health costs by several percentage points. But high profitability in health insurance, combined with regulatory pressures on some nonprofit health plans to reduce their surpluses may stimulate more aggressive pricing by insurers.
Such a turn in the so-called health insurance underwriting cyclethe industrys interdependent pattern of profitability and pricingcould help continue to drive the premium trend down and narrow the gap between the premium and cost trends. However, a turn in the underwriting cycle alone would not slow the premium trend to the low levels experienced in the mid-1990s; only a sustained and substantial decline in the cost trend would do that.
Stakeholder Comments on the HSC Study
Helen Darling, president, National Business Group on Health, www.businessgrouphealth.org
Rick Pollack, executive vice president, American Hospital Association, www.aha.org
Gail Shearer, director of health policy analysis, Consumers Union, www.consumersunion.org
Karen Ignagni, president and CEO, Americas Health Insurance Plans, www.ahip.net
The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nations changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is 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, firstname.lastname@example.org.