Medical Costs Rose 5.4% in 1993, Slowest Growth Rate in 20 Years

The steady increase in medical prices, a primary force fueling the health care reform debate, tapered off markedly last year, the Labor Department reported Thursday.

Its latest consumer price index found that medical costs rose by 5.4% in 1993--the slowest growth rate in 20 years. But that still was twice the rate of the overall increase in consumer prices for last year.

The Labor Department report heightened concerns among health care reform advocates that the trend threatens to take the steam out of the movement. But the news cheered many in the health care industry, who cited the data as proof that there is no need for the sweeping reforms sought by President Clinton.

“The real question is, what caused this (slowdown) and whether this will be sustained,” said Dr. Edith Rasell, a physician and health economist at the Economic Policy Institute.

Some health economists have speculated that the slowdown is artificial--that is, doctors, drug firms and other medical providers have deliberately restrained price increases as a way to stave off comprehensive health care reform. Princeton economist Uwe Reinhardt has called the phenomenon “the Hillary factor,” a reference to First Lady Hillary Rodham Clinton, who led development of the Administration proposal.

“Another theory,” said Rasell, “is that there is now more competition and that it is finally working and prices are under control.”

Whatever the cause, however, Rasell said that medical inflation at twice the rate of the rest of the economy is still too high.

The CPI also showed that pharmaceutical prices rose by 3.1%--a drop of more than half from the 6.4% growth rate in 1992 and the lowest increase in nearly 20 years.

“Cost control is happening even before any enactment of health care reform,” said Gerald J. Mossinghoff, president of the Pharmaceutical Manufacturers Assn.

The controversy over controlling health care costs also surfaced Thursday as more than 550 economists urged Clinton to abandon his plan to limit the rate of growth of insurance premiums. They warned that any attempt to impose stringent controls on health spending may result in long waits for services and a deterioration in care.

But the Clinton Administration quickly disputed the economists, who released a letter that they have sent to the President.

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Among the signers were many conservative thinkers associated with the Ronald Reagan and George Bush administrations, including Michael J. Boskin, chairman of the Council of Economic Advisers under Bush; William A. Niskanen, a council member under Reagan; and two other Reagan economic officials: Martin Anderson and Steve Hanke.

“Price controls produce shortages, black markets and reduced quality,” their letter stated. “You insist that your health care plan avoids price controls. We respectfully disagree.”

A number of Administration officials rebutted the economists, arguing that a cap on insurance premiums is intended only as a backup mechanism in the event that market incentives and competition fail to work.