After nearly a decade of stability, health care spending grew to $1.3 trillion in 2000, up nearly 7% from 1999, and the fastest acceleration in 12 years, says a federal report released in the journal Health Affairs.
The changes mark an "end of an era of reasonable health care cost growth throughout most of the 1990s," according to federal officials.
The year’s report on health spending, based on the latest available data, was written by economists in the National Health Statistics Group (NHSG) at the Centers for Medicare and Medicaid Services (CMS). Their report appears in the January/February 2002 issue of Health Affairs.
In a major change, health-care spending consumed 13.2% of the gross domestic product (GDP) in 2000. This is the second consecutive year that health spending growth outpaced growth in GDP.
"This very well may be the end of an era" in health-care spending, says Katharine Levit, director of the NHSG. "We have had a very unusual set of circumstances since 1992. Now we are reverting to a more historical rate of spending growth when health care was growing faster than GDP," she says.
Data for 2001 indicate that GDP growth has continued to slow, whereas health-care employment, medical inflation, and premium growth have escalated. "This suggests a stronger increase in the health spending share of GDP in the near future," say the authors. This rise in health-care spending is occurring amid a sluggish economy that is producing job layoffs and less profitability for businesses. As a result, both public and private payers are feeling increased pressure to find ways to finance accelerating health-care costs from decelerating incomes and revenues.
"In this environment, employers are going to be inclined to choose less costly options for health plans and consumers may be asked to pony up a little more for their health care," says NHSG economist Cynthia Smith.
"Those who are uninsured are going to have a difficult time paying for health care services and those who are insured are looking at higher premiums."
Hospitals
driving growth
In contrast to recent years, hospitals drove spending growth in 2000.
Hospital spending rose to $412 billion in 2000, a 5.1% increase from 1999 and the first such rise since 1993. Hospital spending hasn’t risen above 4% since that year. Both inpatient and outpatient hospital spending contributed to faster growth in 2000. Medicare hospital spending grew 4.5%, the highest rate of growth since 1997.
The rise in Medicare hospital spending growth is attributable to recent "fixes" to the 1997 Balanced Budget Act (BBA). Swayed by hospital complaints, Congress in 2000 passed the Balanced Budget Refinement Act (BBRA). This law reduced mandated Medicare cuts under the BBA for certain hospitals. The effects of the BBRA boosted total Medicare spending growth to 5.6% in 2000.
A retreat from strict insurer management of medical care and providers’ reactions to managed care led to higher expenditures. Hospitals are taking a stronger stance in negotiating with managed care plans. Hospital consolidation into networks and systems has increased their bargaining power for higher payments from insurers.
Hospitals also have seen a rise in their labor costs. Weekly wages paid to workers in private hospitals grew 4.1% in 2000, up from 2.3% in 1999, according to the report.
Hospitals have had to hire costlier temporary staff, provide more flexible work arrangements, and offer signing bonuses to meet their staffing needs.
As with public spending, the pace of private health care spending quickened in 2000, growing 6.9%, up nearly a percentage point over 1999 growth.
That is due in part to accelerating private insurance premium growth. Health insurance premiums reached $444 billion in 2000, up 8.4% from 1999, making this one of the fastest-growing sources of payment for health care.
Premiums increased primarily because benefit costs rose, especially for prescription drugs, say NHSG staff.
January 18, 2002 Small Business Times, Milwaukee
