U.S. spending on health insurance grew at an accelerated rate in 2011, breaking a two-year trend of smaller cost increases. The culprit, a new study suggests, is not Americans seeking more treatment but rather rapid growth in the price of medical care.
Spending for private health insurance surged by 4.6 percent in 2011, according to a report from the Health Care Cost Institute. That growth rate is faster than the rest of the economy and higher than the previous year, which had 3.8 percent growth.
Average spending on a private insurance patient rose to $4,547 in 2011, compared with $4,349 in 2010. That statistic suggests that a recent downturn in health-care spending may have been a temporary product of the recession rather than a more permanent change, as some health-care economists have hoped.
“We don’t know yet whether this is a one-off year aberration or a resumption of patterns of higher growth,” said Health Care Cost Institute Director David Newman. “We just don’t know. When you have one data point, you’re cautious.”
The Health Care Cost Institute used data from 40 million Americans with private insurance provided by health plans such as Aetna and Kaiser Permanente. The research does not include data on public insurance programs, such as Medicare and Medicaid, which the federal government will make available in early 2013.
Employers typically have tried to control costs by reducing the volume of care delivered, whether that means higher co-pays for doctor visits or using prevention to catch costly diseases earlier.
Those efforts, this report suggests, have succeeded: Inpatient admissions to hospitals actually declined by 0.5 percent between 2010 and 2011.
“One thing Americans should realize is they’re actually not heavier users of health care compared to Germans or Canadians,” said Uwe Reinhardt, a health economist at Princeton University. “Utilization in the United States really isn’t that different.”
Fast growth in the price of health care, however, meant that overall spending still increased. The price of the average emergency-room visit rose by 5.4 percent over the same period, hitting $1,381 in 2011.
The cost of professional procedures, such as doctor visits, rose 3.3 percent, while prescription drugs spiked by 17.7 percent.
“We’ve done a good job cutting back on length of stay,” Newman said. “But if quantity is cut back and prices are going up, you’ll still see overall spending increase.”
Health economists say this reflects a health-care market in which employers and insurance companies have exerted little downward pressure on the cost of medical care.
“No insurer wants to be known as being obsessively aggressive against price increases,” said Gerard Anderson, director of the Johns Hopkins University’s Center for Hospital Finance and Management. “If you’re an insurance company, you stand to lose a large client [the hospital] all to gain a small rate reduction.”
Anderson argues that stronger government intervention is necessary to slow price growth in the health-care market. He points to the example of Maryland, the only state where the government sets the rates that hospitals can charge insurance companies.
The program began in 1976, when Maryland’s per-admission hospital spending was 26 percent higher than in the rest of the country. Between 1977 and 2009, the state’s hospitals “experienced the lowest cumulative increase in cost per adjusted admission of any state in the nation,” researchers in the Journal of American Medical Association concluded.
“Hospital prices have been held down substantially,” Gerard said of the Maryland experience. “And private insurers pay the same rates as public insurers.”
Such efforts, however, have fallen out of favor in other states. Congress gave states the authority to set payments in the early 1970s. About 30 states went on to do so. All states except Maryland gravitated away from those models, as states have looked for more competition and less regulation in health-care markets.