Posted on: Tuesday, June 21, 2005

Healthcare spending stabilized in 2004

By Millie Munshi
Associated Press

NEW YORK — The growth rate in healthcare costs for privately insured Americans leveled off during 2004 but was still problematic because it outpaced the rate of inflation, according to a study released today.

The growth rate for healthcare spending stabilized at 8.2 percent last year, little changed from 8.4 percent in 2003, but still nearly 5 percentage points above the 3.3 percent rate of inflation for the year, according to the Center for Studying Health System Change, which conducted the study. It relied on data on healthcare spending for privately insured Americans compiled by the U.S. Labor Department and three private groups.

The growth rate on healthcare costs peaked at 11.3 percent in 2001 and fell in 2002 and 2003.

"The fact that the decline seems to be stalling is bad news," said Paul Ginsburg, president of the center. "It's a real problem, likely to lead to more people being uninsured," he said.

Although the growth rate fell considerably from three years ago, it's still "definitely high enough to be concerned about," Ginsburg said.

Ginsburg said he expects the healthcare spending rate for the privately insured to be relatively unchanged in 2005, remaining near 8 percent.

Healthcare spending growth outpaced overall economic growth by 2.6 percentage points last year, according to the center, a public policy research organization in Washington, D.C.

Ginsburg said the 2002-03 decline reflected the absence of some one-time costs the industry had in 2000-01 as it transitioned to different forms of healthcare management.

The study tracked five categories of spending. Four of them — hospital inpatient spending, hospital outpatient spending, physician spending, and other spending — all had little or no change in growth rates during 2004. Other spending primarily includes home healthcare and ambulatory services.

The fifth category, the growth rate for prescription drug spending, fell to 7.2 percent from 8.9 percent in 2003, the fifth year in a row that the growth rate has fallen. The study attributed the change to slower growth in drug prices.

Ginsburg said construction of hospitals and outpatient facilities may contribute to the expected increase in spending during 2005.

While the growth rate in healthcare spending was little changed in 2004, rate increases for employer-sponsored health insurance premiums declined, with average increases expected to fall between 8 percent and 10 percent for 2005.

A recent study produced by consulting firm Hewitt Associates found the current average rate of increase that insurers are charging for 2006 is 12.4 percent. Though premium prices are growing at a slower rate, they remain high, and employers tried to combat them by increasing patient cost-sharing in 2005 for the fourth year in a row. But, the rate of increase was not as high in 2005, according to the center's study.

The Center for Studying Health System Change conducted the study using data from the Milliman Inc. Health Cost Index, the Labor Department's Bureau of Labor Statistics, the Towers Perrin 2005 Health Care Cost Survey and the National Business Group on Health/Watson Wyatt Worldwide 2005 Employer Survey of Trends in the Health Care Marketplace.