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Causes of and Potential Solutions to the High Cost of Health Care

Ten Things You Should Know about Health Care Cost Trends

On October 10, 2003, Paul B. Ginsburg, Ph.D., made a presentation in a Web-assisted Audioconference at Session 1, which was entitled Health Care Cost Drivers and Policy Options.

This is the text version of Dr. Ginsburg's slide presentation. Select to access the PowerPoint® Slides (1.1 MB).

Ten Things You Should Know about Health Care Cost Trends

Paul B. Ginsburg, Ph.D.
Center for Studying Health Change
Washington, DC

Slide 1

1. Spending is Rising Very Rapidly

  • Per capita spending up 10 percent in 2001.
    • First double-digit increase since 1990.
    • Much larger than 1.4 percent increase in per capita Gross Domestic Product.
  • Someone will be paying for this.

Slide 2

2. Hospital Care is the Largest Component of Cost Trends in 2001

  • Outpatient spending increased 16.3 percent.
    • Inpatient spending increased 7.3 percent.
    • Enormous reversal from 5.3 percent decrease in 1997.
  • Combined hospital trend accounts for 51 percent of total spending increase in 2001.
    • Accounted for only 18 percent in 1997.
  • Prescription drug spending in 2001.
    • 13.8 percent increase.
    • Accounts for 21 percent of total spending increase.

Slide 3

3. Rising Hospital Spending Reflects Steeper Increases in Prices Paid to Providers and Use of Services

  • Prices rising for hospitals but not physicians.
    • Steeply rising hourly wages.
    • More leverage with health plans.
      • Consolidation.
      • Broad networks.
  • Rising use of services even more important.
    • Service use up 8 percent in 2001.
      • Reversal of trend on admission rate.
      • Rising use of outpatient services.

Slide 4

Trends in Hospital Price and Quantity

Bar graph ranging from -3 percent to 8 percent measuring annual percent change for the Producer Price Index (PPI) and the Quantity Index each year from 1994 to 2002.

Note: the PPI (Producer Price Index) for Hospital Services is for non-public payors and for general medical and surgical hospitals only. The quantity index is calculated as the residual of the Milliman USA hospital spending trend and the trend in the PPI for Hospital Services.

1994: PPI= 4 percent, QI= -2.2 percent.
1995: PPI= 3.7 percent, QI= -2.8 percent.
1996: PPI= 1.8 percent, QI= -1.2 percent.
1997: PPI= 1.7 percent, QI= -0.4 percent.
1998: PPI= 1.9 percent, QI= 1.5 percent.
1999: PPI= 2.5 percent, QI= 3.2 percent.
2000: PPI= 3.3 percent, QI= 3.6 percent.
2001: PPI= 3.6 percent, QI= 8.0 percent.
2002: PPI= 4.1 percent, QI= 6.8 percent.

Data for 2002 compares January-June to corresponding months of 2001.


4. Key Cost Driver: Retreat from Tightly Managed Care

  • Decline in prior authorization requirements.
  • Easier access to specialists.
  • Broad networks lead to higher prices for services.
  • Rich managed care benefit structure remains—for now.

Slide 6

5. Demographic Trends Contribute Only Slightly to Rising Costs

  • Contribution of aging to cost trend.
    • 2001: 0.7 percent.
    • 1990: 0.1 percent.
  • Explains little of increase in underlying cost trend.
    • 2001: 10.0 percent.
    • 1996: 2.2 percent.
  • Implication: More of trend potentially controllable.

Slide 7

6. General Economy Influences Health Care Costs

  • Recent research: five-year lag.
  • Mechanism uncertain.
    • Employer strategies important.
  • During recessions, high cost trends driven by previous booms.

Slide 8

7. New Technology is the Dominant Long-term Driver of Costs

  • Prominent studies: 1/2 to 2/3 of trend.
  • Ready acceptance is a key factor.
    • Public expects new cures.
    • Extensive third-party payment precludes costs from restraining technology.

Slide 9

8. Premium Trend is Higher Now Than Trend in Underlying Costs

  • Premium increase in 2002: 12.7 percent.
    • Underlying cost trend: 10 percent or less.
    • Insurer profits up sharply.
  • Insurance underwriting cycle will turn—but not yet.

Slide 10

9. Shift to More Patient Cost Sharing Already Underway

  • Deductibles, coinsurance, copayments.
    • "Buydown" of 2-3 percent in 2002.
  • Tiered networks.
  • Consumer-driven plans.
  • Consumer information on quality and price.

Slide 11

10. Potential for Some Slowing of Trend

  • Trend declined to 8.8 percent for early 2002.
  • Potential factors.
    • Increased cost sharing.
    • Completion of transition to looser managed care.
  • Projection critical to planning hospital capacity and physician supply.

Slide 12

Further Information

  • Health Affairs, Web Exclusive, September 25, 2002.

Return to Audioconference

Current as of July 2003

Internet Citation:

Ten Things You Should Know about Health Care Cost Trends. Slide Presentation by Paul B. Ginsburg, at Web-Assisted Audioconference, "Causes of and Potential Solutions to the High Cost of Health Care." Agency for Healthcare Research and Quality, Rockville, MD.

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The information on this page is archived and provided for reference purposes only.

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