Premiums increase when the cost of medical services go up. Government data show that in 2009 rising costs for hospitals, physicians, and prescription drugs led to the largest growth in health care spending as a share of GDP since the government started keeping track 50 years ago. Unless steps are taken to address the underlying cost of medical care, health care costs will continue to grow at an unsustainable rate, making it even more difficult for families and small businesses to maintain health care coverage.
New Health Spending Projections
New health spending projections released by CMS last week found that health care’s share of the economy grew 1.1 percentage points in 2009 – the largest one-year increase in GDP share since the federal government began keeping track in 1960. The report, published in Health Affairs, notes that the “two primary drivers of growth…are medical prices and utilization”, which saw a projected increase in spending by 3.2 percent and 1.5 percent in 2009, respectively. Other key findings include:
* “Hospital spending growth is projected to have accelerated from 4.5 percent in 2008 to 5.9 percent in 2009, as spending reached $760.6 billion.”
* “Spending growth for physician and clinical services is expected to have accelerated to 6.3 percent in 2009, up from 5.0 percent in 2008, with expenditures having reached $527.6 billion.”
* “Prescription drug spending is expected to have grown 5.2 percent in 2009, an acceleration of 2.0 percentage points from 2008, and to have reached $246.3 billion.”
AHIP Letter on Factors Contributing to Premium Increases
AHIP recently sent a letter to Capitol Hill to highlight the key factors contributing to increases in health insurance premiums. Here are a few highlights:
* These data show that increases in premiums are driven by the growth in the cost of health care services and that plan administrative costs are rising at far lower rates than the cost of care.
* With respect to specific cost factors, our health plans project that the underlying trends in health care service costs will continue into the future and adversely affect 2010 premium levels. Specifically, our plans are reporting:
* sharp increases in hospital and physician rate requests,
* increases in outpatient surgery costs,
* increased billing for more services provided per emergency room visit,
* increases in the use and cost of specialty drugs, and
* increased cost-shifting as providers seek to offset the costs of treating more Medicaid patients during this economic downturn.
* As the number of uninsured Americans increases, health plans also report seeing an increase in uncompensated care associated with emergency room visits by persons who have no coverage and are unable to pay for the services they receive.
* In a number of markets, consolidation among hospitals and other health care providers also is increasing costs and health plans are reporting higher rate increases from provider systems or hospitals and medical groups with dominant positions. Indeed, approximately 82% of metropolitan areas in the United States have “highly concentrated” hospital markets under guidelines used by the Department of Justice and the Federal Trade Commission.
* A wide range of new state laws – including benefit mandates, regulations, and premium taxes – are contributing to higher health care costs for small employers.
* The current economic downturn is another issue that is playing a role in small employer health care costs. At a time when many small businesses are financially strained, our plans are observing that some companies with young, healthy workforces have stopped offering coverage. Another related trend is that as it becomes more difficult for small employers to continue offering coverage, some are forced to reduce the portion of the premium they cover and increase employee cost-sharing. In response to these decisions, more employees – usually those with below average health costs – are declining to participate. Similarly, few employers are hiring young, less experienced workers because of the weak economy, while others have been forced to lay off workers hired within the past several years. The net impact of these developments is that the remaining risk pool is more heavily weighted with older, less healthy persons, resulting in higher average costs per enrollee for those who maintain coverage.
