Health Care Costs Expected to Jump Over 10% in 2010

The price of health care is going to keep climbing, and the ascent is gong to be steep: According to the new National Health Care Trend survey, released by Buck Consultants, costs for the most popular types of health care coverage are projected to increase by more than 10% in 2010.

Meanwhile, according to a report issued Thursday by the Centers for Medicare & Medicaid Services (CMS), national health expenditures in the U.S. in 2009 are projected to have reached $2.5 trillion and grown 5.7%, up from 4.4% in 2008, while GDP, with the economy in recession, is estimated to have declined by 1.1%. As a result of national health expenditures outpacing GDP growth in 2009, the health share of GDP is expected to have increased from 16.2% of GDP in 2008 to 17.3% in 2009, representing the largest one-year increase in history. The government spent $1.2 trillion, and employer health insurance and various private sources contributed $1.3 trillion on the health care tab.

Buck's survey highlights reasons for the increases, including the following:

  • Continued increases in medical malpractice premiums are causing providers to increase their fees, and insurers are passing their costs to their patients;
  • Providers, particularly hospitals, are under increased regulatory scrutiny, which increases their administrative costs resulting in increases in their fees and negotiated rates;
  • Physician providers willing to drop out of critical provider networks have been successful in negotiating higher fees with managed care organizations;
  • Advances in medical technology: Research and development costs often result in higher initial costs for these services.
  • Pharmaceutical companies are marketing an increased number of high-cost biotech drugs; additionally, drug manufacturers are seeking to improve their profit margins and recover their research and development expenses.

Word of the upcoming price increases is likely to stoke the fires of the health-care reform debate. A new Harris Poll finds that opposition to the president's health care reform proposals continued to increase: By late January, 49% of all adults surveyed said they were against them, up from 41% in November and 45% in December.

Lawmakers remain divided. Earlier this week, President Obama urged Democrats to finish the job on a health care overhaul. The House and Senate each passed separate bills last year, but a deal to merge those measures was upended by Republican Scott Brown's win in Massachusetts, which cost the Democrats their 60-vote supermajority. Democrats continue to squabble among themselves and Republicans are in no mood to compromise.

What's happening on Capitol Hill isn't helping matters with regard to health care costs. "The uncertainty of health care reform is another factor that impacts costs," says Alwyn Cassil, a spokesperson for the Center for Studying Health System Change, a nonpartisan policy research organization.

"Things seem to have stalled, and there are a number of things in the House and Senate versions that insurance companies will respond to, including the so-called tax on Cadillac plans. Those costs will be passed to policy holders," says Cassil.

And while the proposals in Congress take steps toward changing things in the health care delivery system in ways that may increase value and quality, the proposals don't do much in the way of cost containment, says Cassil.

Another issue driving costs up: Americans' unhealthy habits. "If we don't successfully teach people how to manage their lifestyles, we have no hope of containing the medical care cost crisis that is driven, in the majority, by lifestyle diseases, such as heart disease, diabetes, and some cancers," says Vik Khanna, president of Galileo Health Partners and a certified exercise specialist. "Health reform is largely a debate about shifting reimbursement and pushing costs from one place to another; it is almost completely bereft of any meaningful dialogue of the structural underpinnings of rising costs," he adds.

Kevin Wiggins, senior counsel, Employee Benefits Practice Group at Thorp Reed & Armstrong, suggests that costs could be cut if people made more careful use of the system. "Demand can be reduced if we can find a way to encourage individuals to be more careful in their use of health care services. This includes education and incentive programs like wellness programs. I anticipate that soon we'll see the U.S. Department of Labor promoting health plan literacy, which if successful, may help reduce utilization," he says.

Quite simply, says Matthew Modleski, a health care consultant and vice president of Stovall Grainger Modleski, "It's taken us 40 years to get here in health care; we cannot fix it with a piece of legislation, what we need is a 5 to 10 year strategic plan."

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