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Providing Insights that Contribute to Better Health Policy Ten Things To Know About Health Care Cost Trends Bradley Strunk Presented to MCOL’s HealthWebSummit.

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Presentation on theme: "Providing Insights that Contribute to Better Health Policy Ten Things To Know About Health Care Cost Trends Bradley Strunk Presented to MCOL’s HealthWebSummit."— Presentation transcript:

1 Providing Insights that Contribute to Better Health Policy Ten Things To Know About Health Care Cost Trends Bradley Strunk Presented to MCOL’s HealthWebSummit “New Directions in Managing Health Care Costs”

2 The Center for Studying Health System Change (HSC)  Independent, nonpartisan research on changes in the organization and delivery of care – and their impact on people  Funded exclusively by The Robert Wood Johnson Foundation  Primary research effort: Community Tracking Study (CTS)  Also conduct a health care cost tracking analysis annually  Synthesize public and private data series  Integrate findings from CTS site visits

3 Basis of This Presentation  Health Affairs “Web-exclusive” article on latest cost trends (available free of charge):  http://www.healthaffairs.org/WebExclusives/Strunk_Web_Excl_092502.htm http://www.healthaffairs.org/WebExclusives/Strunk_Web_Excl_092502.htm  HSC Data Bulletin on latest cost trends (essentially, an executive summary of web- exclusive article; also free):  http://www.hschange.org/CONTENT/472/ http://www.hschange.org/CONTENT/472/  For general information about HSC, visit our website at www.hschange.orgwww.hschange.org

4 Definition of “Cost”  Focus of this presentation is on health care costs that underlie private health insurance premiums – in other words, the expenditures that are incurred when someone uses the health care system; in this respect, health care costs can also be referred to as “claims” costs or “service use” costs  Term “spending” used interchangeably with “cost”  Health care cost/spending trends based on the Milliman USA Health Cost Index ($0 deductible)  See http://www.healthcostindex.com/ http://www.healthcostindex.com/

5 1.Health Care Spending is Rising Very Rapidly  Per capita spending up 10% in 2001  Much larger than 1.4% increase in per capita GDP  Someone will be paying for this

6 2001 Increase Was Largest in Over a Decade Source: Milliman USA Health Cost Index ($0 deductible)

7 2.Increase in Spending On Hospital Care Increasingly Important to Overall Cost Trend in ‘01 16.3 13.8 10.0 7.1 6.7 Source: Milliman USA Health Cost Index ($0 deductible)

8 Share of Overall Cost Trend Accounted for by Each Category Prescription Drugs Physician Care Hospital Inpatient Hospital Outpatient Source: Milliman USA Health Cost Index ($0 deductible)

9 3.Rising Hospital Spending Reflects Steeper Increases in Both Prices Paid to Hospitals and Use of Services  Prices rising for hospitals  Steeply rising hourly wages for hospital personnel  Hospitals have more leverage with health plans  Due to hospital consolidation  And consumers demanding broader networks  Rising use of services even more important  Service use up 8% in 2001  Reversal of trend on admission rate  Rising use of outpatient services

10 Trends in Hospital Price and Quantity Source: Hospital Price Index: U.S. Department of Commerce, Bureau of Labor Statistics’ PPI for Hospital Services; Hospital Quantity Index: calculated as the residual of the Milliman USA hospital spending trend and the trend in the PPI for Hospital Services. Note: the PPI for Hospital Services is for non-public payors and for general medical and surgical hospitals only.

11 4.Key Short-term Cost Driver: Retreat From Tightly Managed Care  Easier access to specialists  Fewer prior authorization requirements  Less provider risk contracting, or “capitation”  Broader provider networks

12 5.Aging Plays Limited Role in Health Care Cost Trends  Early 1990s: Aging’s effect is negligible  By 2001: Aging accounted for less than 10% of cost trend  Rest of this decade: Aging will remain a limited cost driver

13 Effect of U.S. Population Aging on Health Care Costs (Annual Percentage Change) Sources: Aging Index—calculated using data from the 1996 and 1997 MEPS and U.S. resident population estimates and projections of the under-65 population from the U.S. Census Bureau; Per Capita Non-Medicare Personal Health Care Expenditures—from the National Health Accounts, maintained by the Centers for Medicare and Medicaid Services. Actual EstimatesProjections

14 6.General Economy Influences Health Care Cost Trends  Recent research: five year lag  Mechanism uncertain  Employer strategies important  During recessions, high cost trends driven by previous booms

15 7.Advancing Medical Technology is the Dominant Long-term Driver of Cost Trends  Prominent studies: accounts for ½ to  of long- term trend in excess of general inflation  New procedures  New applications of old procedures  Many innovations that reduce unit costs generate increased volume  Ready acceptance is a key factor  Public expects new cures  Extensive third-party payment precludes costs from restraining technology

16 8.Premium Trend is Higher Now Than Trend in Underlying Costs  Premium increase for 2002: 12.7 percent  Health insurance “underwriting cycle” (UC) plays important role  Health insurer profits now up sharply  The UC will turn – but not yet Source of premium data: Kaiser Family Foundation/Health Research and Educational Trust Employer Benefits Survey

17 9.Shift to More Patient Cost Sharing Already Underway  Higher deductibles, coinsurance, copayments  Cost of coverage increased 2-3% in excess of premiums in 2002  Tiered provider networks  Consumer-driven plans

18 10.Potential for Some Slowing of the Overall Cost Trend  Trend declined to 8.8% through first six months of 2002  Potential factors  Increased patient cost sharing  Completion of transition to looser managed care  CMS projects a slowdown in private personal health care expenditure growth in 2003

19 Conclusions  Mid-1990s was a temporary hiatus from cost pressures  Financing system will force attention to the issue  Emphasis now on patient financial incentives  Approach vulnerable to backlash  Lack of alternatives will limit response


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