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Rising Health Costs Could Squeeze Workers' Benefits: Report

Health care spending shot up 7 percent in 2000

TUESDAY, Jan. 8, 2002 (HealthDayNews) -- Health care spending in the United States jumped nearly 7 percent in 2000, to $1.3 trillion, according to a new report from government researchers who are calling the spike the "end of an era" of tight reins on medical expenditures.

To cover the increase, health insurers are likely to raise premiums for employers, who in turn will pass the bill along to workers, scale back benefits or simply abandon them altogether, experts say.

Cynthia Smith, an economist with the Centers for Medicare and Medicaid Services' National Health Statistics Group, and a co-author of the report, says the situation is exacerbated by the latest economic downturn.

"But even without the current recession the costs were accelerating and many employers were beginning to restructure their benefits to encourage more efficient use of prescription drugs and various other services," Smith says.

The 6.9 percent increase in health spending brought per-capita expenditures to $4,637 in 2000, the report says, 1.2 percent more than the previous year.

Health care spending claimed 13.2 percent of the nation's gross domestic product (GDP) in 2000, and the growth rate outstripped the increase in the GDP for the second consecutive year, after nine years of relatively similar increases.

The report, published in the latest issue of the journal Health Affairs, says several forces fueled the rise in health spending. But it singles out prescription drug costs and hospital care as the two big-ticket items.

Prescription drug purchases rose 17.3 percent in 2000, to nearly $122 billion, spurred in large part to aggressive advertising of the new painkillers Vioxx and Celebrex, and other blockbuster pills. Although prescription drug spending climbed a little slower than it did in 1999, it remained the single fastest growing segment of the health economy.

Hospital spending climbed 5.1 percent in 2000 over 1999, to $412 billion. The last time hospital costs rose more than 4 percent annually was in 1993.

Another factor in the rise: The booming economy of the late 1990s encouraged people to eschew strict managed care plans for more expensive, less confining systems, the report says.

"This resulted in faster growth in private health care spending than existed between 1993 and 1997, when cost containment strategies and increasing enrollment in managed care plans helped to dampen growth," the report says.

The growing health budget also reflects increased reimbursement to doctors and hospitals from the Medicare program -- the government's insurance plan for the elderly -- over previous years, according to the report.

Smith says the recent rise in health care spending hasn't necessarily been bad, and may even have helped prevent the latest recession from being worse than it is.

"Spending money on health care does help grow the economy. It's actually a stabilizer in periods of economic downturn," she says.

John Holahan, director of the Health Policy Center at the Urban Institute, a Washington, D.C., think tank, says the new study has "been around" in various forms but welcomes the government seal. What needs publicity, he says, is not the impact of the cost surge on bosses and workers but its deleterious effects on state Medicaid programs for the poor.

Strained state budgets also mean less money for Medicaid. Adding to its woes, the program is experiencing instability as commercial insurers that have dealt in the past with Medicaid retreat in search of more profitable markets.

While the government report may offer a troubling prediction for worker benefits, a study of more recent data suggests that employers have been expanding, not restricting, health insurance coverage.

Paul Fronstin, a health economist at the Employee Benefit Research Institute, says the share of American workers without insurance fell from 15.9 percent in 1997 to 14.9 percent last year.

Fronstin, whose data appear in a report also published in the current Health Affairs, says it's too soon to tell whether the slumping economy will lead to cutbacks in employee health coverage. However, he says, if the economy picks up this year, "I would predict that it's not going to happen. We still saw expansions in coverage of workers simply because of the expanding economy and despite the rising health care costs."

What to Do: For more on employer-based health insurance, try the Employee Benefit Research Institute. To find out more about ways people are trying to improve the nation's health care system, check out the Center for Studying Health System Change. And to learn more about the state of the current system, try the Agency for Healthcare Research and Quality.

SOURCES: Interviews with Cynthia Smith, M.A., economist, National Health Statistics Group, Centers for Medicare and Medicaid Services, Baltimore; Paul Fronstin, Ph.D., economics, director, health research program, Employee Benefit Research Institute, Washington, D.C.; and John Holahan, director, Health Policy Center, Urban Institute, Washington, D.C.; Health Affairs, January/February 2002
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