Medical Spending Expected to Soar
The honeymoon era of low inflation for medical spending is over, and the nation’s bill for hospitals, doctors and pharmaceuticals will jump sharply over the next 10 years, the federal government warned Monday.
The growth in outlays for medical care, which slowed to an adjusted 1.3% annually from 1993 through 1997, will climb to 3.3% annually for the period ending in 2007, according to the forecast by the Health Care Financing Administration. The prediction of renewed price hikes could signal a new round of conflict between employers, who want to control their corporate health-care costs, and their workers, who seek expanded access to care.
The shift to managed care--including the use of health maintenance organizations--has produced significant short-term cost savings, according to the government estimates. But over the long term, rising demand for health care and new technologies will drive up the pace of spending, the HCFA experts told a new conference.
But there was a strong dissent from a private industry expert, who predicted that employers would not readily accept a return to high inflation. Instead, they will impose tough new restriction on employee spending, including stricter limits on outlays for prescription drugs, said John Gabel, director of the Center for Survey Research at KPMG Peat Marwick Main & Co.
“Employers are price-sensitive. There are so many things they can do,” Gabel told the news conference at which the new government estimates were released.
Total national outlays for health care will more than double, with spending climbing from $1 trillion in 1996 to $2.1 trillion in 2007, according to the HCFA estimate.
More significant, the share of national output devoted to health care will rise, from 13.6 cents of every dollar spent today to 16.6 cents of every dollar in 2007.
The forecast is based on expected increases in “real” health spending, which means after inflation is considered. For example, the forecast calls for 3.3% real growth for the decade. If overall U.S. inflation, for example, is 3%, the cost of health care will climb 6.3%. That’s why health services will consumer a larger share of the total economic pie.
Some surveys conducted by consulting firms and corporate groups in recent months had suggested that health-care premiums might be increasing. But these were limited to certain groups of companies. The new HCFA forecast, by contrast, is a formal effort by the government’s best experts to review health outlays in the entire economy and to develop a blueprint for spending patterns covering all providers and consumers of health-care services.
The overall outlook, though worsening, still represents a significant improvement over the period from 1973 through 1992, when real health costs rose at an annual rate of 4.6%, after adjustment for inflation.
The reasons for renewed inflation in health care include higher wages in the field and an increased volume of services--more procedures, more operations and more drug prescriptions, according to Sheila Smith, a HCFA economist and one of the authors of the forecast, which is being published in the September-October issue of the journal Health Affairs.
And the healthier economy is boosting demand too. “Recent economic strength has driven income up and will drive spending up in the next several years,” she told the news conference.
About 85% of all insured people are now covered by managed-care arrangements in which spending is controlled through devices such as requiring an individual to get approval from a primary-care doctor--a “gatekeeper”--before seeing a specialist. In HMOs, the patient must stay within the list of HMO doctors.
Responding to concerns expressed by employees, many companies are moving to point-of-service plans, which allow the patient to go outside the network of doctors in return for paying more money.
These plans are increasingly popular, but they raise the cost of medical care for corporations. The accuracy of future spending estimates will depend on the conflict between employers’ desire to hold down costs, and employees’ demands for easier access to doctors, hospitals and prescription drugs.
Companies could become more insistent that workers fill prescriptions with generic rather than branded drugs, and could restrict the number and type of drugs approved for reimbursement, said Gabel of KPMG Peat Marwick, a consulting firm. Spending by Medicare, the federal program for those over age 65 and the disabled of all ages, has been growing at a more rapid pace than private outlays in recent years. But the public program’s expenditures will slow because of legislation adopted last year that trims the rate of Medicare payments to hospitals and imposes new controls on other categories of Medicare spending, such as home health care.
Overall, consumers’ out-of-pocket outlays will continue a long-term decline from 40% in 1970, to 19% in 1996 and to 17% in 2007, according to HCFA estimates.
