U.S. Medical Spending Soars 11% During 1989 : Health: The increase is the biggest since 1982. It is a disturbing sign that efforts to control costs are failing.
The nation’s spending for health care soared 11.1% last year, the biggest rise in seven years, in a disturbing signal that businesses and governments are failing in their efforts to control medical costs, federal officials disclosed Thursday.
Health care outlays grew much faster than the general economy. They hit $604.1 billion last year, up from $544 billion a year earlier, according to a report issued by the Department of Health and Human Services.
The trend “is alarming because steep increases in health costs are limiting access to health care and imposing a heavy burden on individuals, industries and government,” said HHS Secretary Louis W. Sullivan.
Health spending now accounts for an unprecedented 11.6 cents of each dollar’s worth of goods and services produced by the massive U.S. economy. Even with a recession apparently underway, employment in health services rises inexorably each month.
From 1984 through 1987, outlays for health rose less than 10% a year, giving corporate managers and government officials a false optimism that they were bringing health care costs under control.
But double-digit trouble returned in 1988, when spending jumped 10.5%, and continued last year, with the gain of 11.1%. The surge in spending was the biggest since a 12.2% jump in 1982.
“Most employers I’ve spoken to won’t be surprised” by the burst of spending, said Karen Brigham, health policy manager for the U.S. Chamber of Commerce. “There is no magic bullet to solve this problem. The only consensus we have is a consensus in frustration--we all agree something must be done,” she said.
The rising cost of care has made health insurance increasingly unaffordable for many small businesses, because premiums rise along with costs. The growing ranks of the uninsured now include 33 million Americans, and about 80% of the uninsured are full-time workers and their dependents. Most work for small companies and earn $20,000 a year or less.
Major corporations, meanwhile, are trying to restrain health costs for employees by a variety of techniques, such as requiring second opinions before medical procedures are approved and imposing stricter limitations on the duration of hospital stays.
But these haven’t slowed the juggernaut of spending in any effective way, according to William Custer, research director for the Employee Benefit Research Institute.
“There really hasn’t been a fundamental change in delivery systems to control costs,” he said. Big employers will turn increasingly to direct contracting with hospitals and doctors to control fees, Custer said.
“You can’t manage just by raising the deductible,” the amount employees must pay each year before insurance takes over, he said.
The HHS report cited inflation as the major factor behind the increased spending. The intensity of services--more tests and procedures per person--also boosted outlays.
Inflation in medical care runs about twice as fast as the level of general inflation. Attempts to control spending by limiting doctors’ fees have been largely unsuccessful because doctors have increased the number of office visits and tests, according to economists.
Inflation has also been spurred by the demands of an aging population, which needs more medical care, and by the introduction of costly new technology.
Thursday’s report “shows the ability of the provider community--doctors and hospitals--to continue to resist the pressure of both the government and the economy,” said Carl Schramm, president of the Health Insurance Assn. of America. “Next year, we will see the same rate of spending when we will have lived through a full year of recession. In the last three recessions, physicians and hospitals were impervious to downturns,” he said.
There is no firm evidence that Americans are healthier than a decade ago, although they are spending vastly more for health care, Schramm said. Spending per person--$1,059 in 1980--reached $2,354 last year, according to the HHS report.
The biggest categories of spending last year included: hospitals, $232.8 billion; doctors’ services, $117.6 billion; nursing home care, $47.9 billion; drugs, $44.6 billion; dentists’ services, $31.4 billion; glasses and other equipment, $13.5 billion, and home health care, $5.4 billion.
Health care occupies a unique place among the services consumed by Americans: Most of the bills are paid directly by someone other than the consumer. Out-of-pocket spending by consumers covered just 23% of health care costs last year. Private health insurance paid 33% of the bills, and other private sources of funds covered 3%.
The federal government paid 30% of health care charges, principally through the Medicare program--which serves persons over 65 and the disabled--and Medicaid, which pays for the poor. State and local governments paid for 11% of health expenditures.
When the pace of health care spending slowed in the mid-1980s, “there was some premature declaration of a victory,” said Horace Deets, executive director of the American Assn. of Retired Persons. “But now we realize that these rising costs will deny access to health care for more and more people. We’re going to have to address the issue and go for a systemic reform,” he said. “It may take a couple more years to make it so uncomfortable that we realize we have to do something.”
Bush Administration officials also express alarm but have offered no specific plan for dealing with the issue.
