Understanding Trends in Health Care Cost
Understanding Trends in Health Care Cost
Price Waterhouse, in conjunction with America’s Health Insurance Plans (AHIP), recently complied a report on the factors influencing the rising cost of health care cost. Below is a summary of that report. In 2007 the average annual growth in health insurance premiums was 6.1%, far below the 2002 growth rate of 13.9% and this trend currently seems to be continuing. Of this 6.1% increase, 2.8% stems from general inflation which accounts for 46% of the total increase in cost. Increases in utilization accounted for 25% (1.5%) of rising cost of health insurance premiums. The remaining portion of the increase comes from Health Care Price Increases in Excess of Inflation. The major factors that drive this sector are reduced provider competition (0.8%), cost shifting from Medicaid and the uninsured to private payers (0.5%), and higher priced technologies.
Break down of Growth by Service Type.
Physician and Clinical Services make up 33% of health care spending, the largest single section. This sector grew by 5.5% and account for 1.8% of the 6.1% increase in health care cost.
Hospital Inpatient spending makes up the second largest component of health insurance premiums at 20% and grew at an impressive 7.5%. This accounts for 1.5% of the total 6.1% increase.
Hospital Outpatient grew at an annual rate of 8.2% and accounts for 15% of the cost of private health insurance premiums. With more services being preformed on an outpatient basis, it is easy to see how this area increased at a faster pace than hospital inpatient cost. This area accounted for 1.2% of the 6.1% total increase.
Prescription Drugs had, in the past few years, been the fastestgrowing component of health insurance premiums, reaching well into double digits. However, prescription drug increases have recently slowed significantly and grew at only 5.7 percent in 2007, less than the overall growth in premiums. Prescription drugs accounted for 0.8 percentage points of the 6.1 percent increase in premiums.
The remaining benefit costs, which accounts for only 5 percentof health spending, grew at only 3.8 percent and accounted for only 0.2 percentage of the 6.1% increase, comes from what is described as Other Medical Services.
When looking at the total Administrative Cost, which includes compliance related issues with HIPPA, Federal and State Taxes, claims processing, communication with consumers and several other areas, it does seem to be one of the brighter hopes. While administrative cost makes up only a small portion of rates increases, they are actually moving at a much slower pace than any of the other cost factors. Improvements in claims processing from all paper processing in the 1966 era, to today where nearly all of prescriptions drug claims are done electronically, have kept these cost much closer to the general increase in inflation. Advancement in technology and information sharing should continue to keep administrative cost under control as we move forward.
Information provided from the Kaiser Family Foundation shows that in North Carolina, Emergency Room visits per 1,000 population in 2006 were 434 versus the national average of 396. Much of this difference can be accounted for when looking at the demographics, the rural area of the State, and a lower per capita income. It also is an indication that more people continue to use the emergency room as opposed to family doctors or urgent care centers which have lower cost. From 1999 to 2006 North Carolina ER visits jumped from an average of 372 to 434, a 17% increase, whereas the national average moved from 365 to 396, an increase of 8%.
The Kaiser Foundation further reports that the trends in cost per inpatient day from 1999 to 2006 had one of the highest increases in total health care spending. The national average increased from $1,102 to $1,612, a 46% increase. North Carolina cost per inpatient day moved from an average of $987 to $1,362, an increase of 38%. Whereas this is a bright spot in cost for North Carolina, it shows that hospital costs are increasing at a much faster pace than general inflation.
When looking at average Employer based health care premiums, the North Carolina average was $4,200 per year for employee only coverage of which $750 of this was being paid for by the employee. Information provided in this report is a brief overview of trends in health care.
When developing a health care benefit plan for employees, information on trends, especially trends in your own group play a critical role in the decisions you make as an employer. Understanding trends and how they relate to the decisions you make, as well as staying informed on changes in HIPPA and COBRA rules can become overwhelming for many Human Resource Managers when done without the help of timely information.
Phillip C Burnette
The Burnette Financial Group, Inc.
413 Dabney Drive
P.O. Box 821
Henderson, NC 27536
252-492-2409
Phillip C Burnette is the founder and President of The Burnette Financial Group, Inc., in Henderson, NC. He is a member of the Triangle Association of Health Underwriters and has been a health, life, disability, dental, and employee benefits broker/consultant for over 22 years. The complete AHIP/PWC survey is available at http://www.ahip.org Kaiser Family Foundation web site www.kaisernetwork.org