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Growth in health care costs expected to slow.

What goes up must ... not keep going up quite as fast.

At least that's what the Centers for Medicare and Medicaid Services (CMS) is predicting will happen to health care costs. Although the numbers for last year are still being crunched, CMS has predicted that health care spending in 2003 will have grown 7.8%, down from 9.3% in 2002. And for the coming 10 years, the agency predicts average yearly growth in health care costs of 7.3%.

"The deceleration in the health care spending growth rate is mainly due to slower rates of growth anticipated for Medicaid and Medicare spending, private health insurance spending per enrollee, and medical price inflation," CMS said in a statement. "In particular, hospital and prescription drug spending are projected to experience slower growth than they have in recent years," the statement said.

These projections seem realistic, according to Leighton Ku, Ph.D., senior fellow in health policy at the Center on Budget and Policy Priorities, a liberal Washington think tank. "Forecasting is inherently a dicey exercise," he admitted. "But in general, what the actuaries are estimating seems reasonable based on recent experiences."

Health care spending always has its up-and-down cycles, Dr. Ku said. For instance, "in the mid-to late 1990s, there was a point where general health care costs were rising slowly," although even slow increases in health care costs are still rapid compared with the rest of the economy.

But then, in the beginning of this decade, "we saw health care costs really spike, and what [CMS] is saying now is that the cycle has begun to turn down again," he said.

Dr. Ku agreed that a large part of the downturn in cost growth resulted from changes in both Medicare and Medicaid reimbursement. In Medicare, for instance, there have been "residual effects" from laws such as the Balanced Budget Act of 1997, which included provisions to slow the increase in Medicare costs. Although Congress has passed some "give-backs" to restore money to providers and others, the effects of the law still linger, he said.

In Medicaid, cost growth has been slowed by states cutting their Medicaid budgets to save money during economically difficult times, Dr. Ku said, noting that his organization recently estimated that between 1.2 million and 1.6 million people have been cut from the Medicaid rolls as a result.

In private health care, costs are coming down in part because some employees have stopped paying for health insurance, he said. "Suppose your monthly health care premium goes from $50 per month to $100 per month. Some people will stop taking the coverage, while others will say, 'I hate it, but I'll pay it.'"

Dr. Ku said that one disturbing assumption made by the report's authors was that the percentage of those who were uninsured would continue to rise. "They don't publish statistics on uninsurance, but they have an implicit estimate of how many people will be enrolled in an insurance plan and what is the cost per enrollee." This percentage increase is expected to occur despite the fact that, as the population increases, more people will obtain health insurance, he added.

The estimates do not take into account the effects of the Medicare prescription drug benefit law. The law "may shift the cost of items normally bought on the private side over to Medicare, and it also could mean an overall increase in the purchase of prescription drugs," Dr. Ku said. "But it's more who's paying for the drugs than a [big] increase in the total amount."

The CMS investigators did say they expect growth in prescription drug spending to drop for the next few years, but they also predicted that it would still be the "fastest-growing" health sector.


Associate Editor, Practice Trends

The CMS report can be found at
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Title Annotation:Practice Trends
Author:Frieden, Joyce
Publication:Clinical Psychiatry News
Geographic Code:1USA
Date:May 1, 2004
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