The Price of Progress: The Real Reason for Health Care Cost Increases
The average cost of employer-sponsored health insurance increased by 14.7 percent per worker in 2002. That is the largest single-year increase since 1990, and the forecast for 2003 is an additional 14.6 percent increase.
Why is the cost of health care rising at almost seven times the rate of inflation? Like most matters involving health care, the answer is not simple, but the major reason actually is good news for many patients: gigantic progress continues in medical science and medical knowledge. New technology and new treatments are available, new cures are being found, new drugs are being developed - and the resulting improvements raise health care costs.
Not unrelated is the fact that most of us as patient-consumers have only a vague idea of the cost of the care we consume - because usually we are not paying the costs directly. Health care benefits averaged $5,646 per employee in 2002, according to a survey by Mercer Human Resources Consulting.
Exactly what drove the latest spending increases? A recent study by the Center for Studying Health System Change found that inpatient and outpatient hospital care accounted for more than half (51 percent) of the overall increase. Spending for physician services accounted for 28 percent. Spending on prescription drugs accounted for 21 percent.
The cost of prescription drugs has come under heavy fire in recent years, particularly from some members of Congress and our state legislature, and some advocacy groups. Much of this criticism apparently has been fueled by the lack of a Medicare prescription drug benefit and by the perception that drug companies were charging high prices for medicine that often cost only pennies to manufacture.
But even with the latest increases, less than a dime of every health care dollar is spent on prescription drugs. And it is the total cost, not the price that accounts for most of the increase. IMS Global Consulting, which tracks prescription drug sales, reports that drug sales increased 16.9 percent in 2001, but only 4.9 percent resulted from price increases. The other 12 percent came from what are called "non-price factors" - a higher volume of sales, a changing mix of available products and the introduction of new medicines.
What this means is that drugs are replacing or shortening other medical treatments, particularly in dealing with cancer, heart disease, Alzheimer's, AIDS and mental illness. One study concluded that every dollar a patient spends on drugs could be associated with a $4 decline in spending on inpatient treatment.
The Asthma and Allergy Foundation of America and the National Pharmaceutical Council have found that every dollar spent on increased use of non-sedating antihistamines saves employers between $2 and $4 in absenteeism and reduced productivity.
This year, hospital spending is catching the flak. The Blue Cross and Blue Shield Association, which has a vital interest in keeping hospital costs down, says research studies it commissioned find that "inpatient hospital costs are outstripping pharmaceutical costs as a primary driver of health care costs." This research fingers the rapid proliferation of new medical technology and the growing trend of hospital consolidation, along with upward pressure on hospital wages.
There seems to be a common thread in this health care cost escalation - one touched on earlier: the people receiving health care don't know what it's costing. Further, unlike household appliances or automobiles, consumers generally have little control over their personal health care spending in our present system. That situation can be changed with consumer-based health care reform. Until that time, we can look forward to some good news - continued advancement of medical sciences that are curing serious illnesses and saving lives.
Meanwhile, Congress and our state legislature should consider proposals that give consumers more choice and say in the health care services they require, and that expand health insurance coverage for the uninsured, so that they too can afford to purchase their own health insurance policy.
We may not be able to make the health care system more efficient overnight, but we can make sure that lower-income workers who do not have access to health insurance through an employer get some help in buying a basic health insurance policy, so they too can be part of the medical miracle.