Maryland logged its largest increase in health care spending in a decade in 2001 as medical expenses rose at an ever-faster rate, the result of a nationwide increase in the use and costs of health care that threatens to strain state and federal budgets, drive up insurance premiums and force more people to give up coverage, say authors of a new state-sponsored study.

The annual survey by the Maryland Health Care Commission found that spending on health care for Maryland residents reached $21 billion in 2001, up 12 percent from the previous year.

By contrast, health care spending in Maryland increased 5 percent from 1998 to 1999 and 8 percent from '99 to 2000.

The 2001 increase, the highest since the General Assembly first charged the commission with collecting such data in 1994, reflected a surge in spending on everything from hospital stays to outpatient services to prescription drugs.

"That's the biggest news this year," said the commission's deputy director, Ben Steffen. "Historically we've seen spending increase rapidly in some sectors. . . . But this year we have 10 percent increases or more across all areas."

Maryland's rate of increase is slightly higher than the 10 percent rise in health care spending nationwide, suggesting that the state's traditionally lower health care expenditures could ultimately catch up to national levels.

Until now Maryland has kept spending in check by setting caps on hospital rates. The state has also benefited from the higher-than-average portion of its residents who have been insured through health maintenance organizations -- which keep spending down by negotiating lower rates with selected caregivers and controlling patients' access to medical care.

Largely as a result, per capita spending on health care in Maryland remains about 3 percent below the national average.

But a number of recent developments have begun to erode Maryland's advantages. Most notably, the percentage of residents enrolled in HMOs dropped from 40 percent in 2000 to 35 percent in 2001, as subscribers became increasingly dissatisfied with the limits HMOs placed on their choice of doctors and access to medical treatment.

"They weren't willing to put up with the things that helped control [their use] of services," noted Hal Cohen, a former director of the Maryland Health Services Cost Review Commission. "Now they are complaining about having to pay for the resulting increase [in their use of services]. But it's awfully hard to have it both ways."

The state has also seen a larger-than-average increase in the size of its elderly population over the past decade, contributing to a 13 percent jump in spending in Maryland by the federal government's Medicare program -- with the bill totaling $4.7 billion in 2001.

Medicaid -- which covers low-income residents -- also saw its spending grow in Maryland. The program, which is jointly funded by the state and the federal government and was expanded to include a larger pool of Maryland's children in 2001, spent $3.7 billion in 2001.

If such trends continue, "it will put significant pressure on state and federal governments to fund these programs," Steffen said.

Indeed, the Bush administration is currently finalizing a controversial proposal to address the looming Medicare crisis by encouraging the elderly to join a new version that relies on private managed care plans.

Critics charge that this will do little to alleviate the problem and that President Bush should focus exclusively on another aspect of the plan -- extending prescription drug coverage to seniors.

In Maryland, spending on prescription drugs increased by 14 percent, second only to an 18 percent rise in spending on outpatient services and a 15 percent increase in spending on care by non-physicians such as optometrists and chiropractors.

Although Medicare is most affected, these increases are also affecting private health insurance providers -- whose spending grew by 11 percent -- and their subscribers, whose out-of-pocket costs increased by 12 percent.

And it's likely that private insurers will require patients to foot an ever-larger portion of the bill. "There's a lot of talk of putting more on us [to pay] on patients because they'll have second thoughts about spending their own money rather than someone else's," Cohen said.

Both Cohen and Steffen predicted that insurers would also increasingly raise premiums, making coverage unaffordable for some subscribers even as Medicaid struggles to pay for those already on its rolls.

So far the percentage of uninsured residents in Maryland has remained unchanged at 12 percent -- slightly below the national rate of 15 percent.

"But that number is already a disgrace in a state as rich as Maryland," Cohen said, "and rising rates will only cause more people to lose their insurance."