Transcript Key Health Care Cost Drivers - Center for Studying Health System

Eighth Annual Wall Street
Comes to Washington
Conference
June 18, 2003
Joy M. Grossman, Ph.D.
Recent HSC Studies
 Strunk and Ginsburg, "Tracking Health Care
Costs: Trends Stabilize but Remain High in
2002", Health Affairs,Web-exclusive, June 11,
2003 and Data Bulletin No. 25, June 2003
 Lesser and Ginsburg, “Health Care Cost and
Access Problems Intensify: Initial Findings
From HSC's Recent Site Visits”, Issue Brief No.
63, May 2003
 Devers, Brewster, and Ginsburg “Specialty
Hospitals: Focused Factories or Cream
Skimmers?”, Issue Brief No. 62, April 2003
Rapid Spending Growth
Threatens Affordability of Health
Insurance
 Health care cost trend declined slightly in
2002, but insurance premium trend continued
to accelerate in 2003
 Increased consumer cost sharing but few other
strategies to control costs
 Provider strategies exacerbating cost growth
 Consumer financial burden and uninsurance
rates likely to increase
Overall Cost Trend Declined
Slightly But Remained Very High
12%
Health Care Spending
GDP
Annual % Change Per Capita
10.2
10.0
10%
9.6
8%
6.9
6%
4.8
4.6
4%
2.6
2%
2.1
1.8
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Sources: Health care services: Milliman USA Health Cost Index ($0 deductible);
U.S. economy: Gross Domestic Product (GDP)
2001
2002
Components of Cost Trend
 Hospital care the most important contributor
– Use trend has moderated
– Price trend continues to accelerate
 Prescription drug trend has slowed but still
high
Key Health Care Cost Drivers
 Short term
–
–
–
–
Retreat from tightly managed care
Growing provider leverage
Labor shortages
New drugs and advertising
 Key long term driver is new technology
Premium Increases Grow Even As
Employees Face More Cost
Sharing
 Insurance premiums in 2003 higher than in
2002
– 15 percent net increase vs. 13 percent
– Underwriting cycle has not yet turned
 Benefit buy down also grew between 2002 and
2003
– 3 percent vs. 2.5 percent
– PPO deductible, drug copays
Employers Aggressively Shift
Costs
 Employee cost sharing more widespread and
affecting more services than two years ago
 Unionized firms and public sector employers
adopting premium sharing
 For those with premium-sharing already,
increasing copays and deductibles and moving
to coinsurance
Some Indications of Eroding
Coverage
 Some reports of small firms dropping coverage
 Incentives for employees to drop dependent
coverage or switch to spouse’s plan
Managed Care: Improved Profitability
But Few Strategies for Cost Control
 Plans’ financial performance has improved
 Few traditional cost-control strategies remain
viable
 Experimentation with product design but
limited take up
– Tiered provider networks
– Consumer-directed health plans
Provider Strategies Contributing
to Cost Pressures
 Hospitals maintain leverage in contract
negotiations
 Competition for profitable specialty and
ancillary services heats up
Outlook
 Unclear if cost trend will continue to slow
appreciably
 Turn in insurance underwriting cycle would
slow premium trend
 Consumers likely to continue to face
increasing financial burden and loss of
coverage
HSC
Wall Street Comes to Washington