Private healthcare premiums increased by nearly 15% from $697 billion to $801 billion between 2005 and 2009, reports the National Institute for Health Care Management.
NATIONAL REPORTS-Private healthcare premiums increased by nearly 15%, from $697 billion to $801 billion between 2005 and 2009, reports the National Institute for Health Care Management (NIHCM) in its data brief, "Understanding U.S. Health Care Spending."
Putting the 15% increase over four years into perspective, economist Gail Wilensky, senior fellow at Project HOPE, an international health foundation, believes that increase is closer to 3% or 4% a year.
"That's a little higher than I'd like to see, but the real concern should be on the areas where the increases are occurring," she says.
"Let's not focus on administrative costs but rather on improving quality," Wilensky says.
She calls the attention paid to medical loss ratios "misguided." Low administrative costs are not necessarily something to be proud of.
"The key is delivering a good package of services and quality of care by giving individuals a choice of benefits," she continues. "The industry should be more concerned about the care it is buying and if that care is worth the premium."
HOSPITAL MARKET POWER
Not surprised that hospital spending would far outweigh the dollars targeting other services, she attributes the 15% increase to growing market power of hospitals that have merged or acquired physician practices. The NIHCM report emphasizes the increased influence of providers whose consolidation has wielded stronger negotiating power and higher payment rates from insurers.
"Hospital costs have always led spending and claim costs," says Randy Vogenberg, principal at the Institute for Integrated Healthcare in Sharon, Mass. "Since underwriting used to determine premiums is based on prior years' experience, it's an incremental growth and reimbursement system that has continued unabated for decades."
Insurance underwriting of risk had not changed so base costs remained relatively reasonable, plus 2009 started the ramp up to health reform along with increased oversight on insurance cost increases in general, Vogenberg says.
He believes that pharmaceuticals get a bad rap as high-cost generators, when much more attention should be on expensive hospital readmissions. He suggests that savings generated through generic offerings can offset the higher unit cost and greater number of new biotech products resulting in, at best, zero trend or single-digit growth year over year.
Wilensky says, however, that a decade ago, the rate of increase had been dominated by pharmaceutical spending.
"The causes were not medical inflation or increased volume but rather the introduction of expensive specialty drugs," she says.
The report shows that prescription drugs and durable medical equipment together represent only 9% of the premium increase over the four-year period.