HEALTH CARE COSTS ñ MYTHS AND REALTIES

HEALTH CARE SPENDING ñ MYTHS AND REALTIES

There continues to be confusion about health care expenditures, whether expenditures are being controlled, and which segments of our society are affected by recent and projected increases in health care inflation.

MYTH 1 – The health care cost crisis is over.

REALITY – Although it has been reported that health care spending is being controlled, recent data show clearly that a new round of increases in health care spending is underway. Historically, inflationary increases in health care spending have moderated during periods of intense national scrutiny of the health care delivery system. Typically, these reductions have been temporary. Health care inflation has tended to escalate immediately after public attention has shifted to other national priorities. Indeed, coming shortly after the heated health care reform debate of 1992-94, the data point to the likelihood of an acceleration in the rate of health care inflation over the next five years.

MYTH 2 ñ Health care expenditures for employees, or individuals and employers have been under control for the past five years.

REALITY ñ Employers, especially large employers, have experienced small annual increases in their health insurance premiums, but that has not translated into smaller increases for employees. Across all families, direct spending on health insurance increased sharply during the 1990ís, rising at an inflation-adjusted rate of 6.4 percent per year. Consumers spent twice as much on health insurance in 1997 as in 1987.

MYTH 3 ñ Managed care has kept health care inflation in check, resulting in savings to consumers.

REALITY ñ While attention has focused on managed careís success in slowing the growth in health spending, substantially less attention has focused on spending by families. Families incur several types of health spending, including payments for health insurance, co-payments and deductibles, as well as direct spending on services not covered through their health plans. The magnitude of these expenditures can be substantial, in some cases accounting for 15 to 20 percent of the family budget.

MYTH 4 ñ Families earning over $70,000 a year are bearing the brunt of premium increases.

REALITY ñ Between 1993 and 1995 families earning between $40,000 and $50,000 saw their health insurance premiums rise 8.5 percent per year, and families earning $50,000 to $60,000 faced an average increase of 5.6 percent. In contrast, families earning above these incomes faced nearly no growth in premiums. Even after adjusting for inflation, between 1990 and 1997, the average annual growth in health insurance spending was nearly 10 percent for families with a single parent earning between $30,000 and $40,000 per year. Middle-income families, especially single parents and couples with children, are hardest hit by the current escalation in health care expenditures.

MYTH 5 ñ Business firms have benefited significantly from managed care and other cost containment initiatives.

REALITY ñ During the decade of the 90ís, health insurance premiums for smaller firms systematically increased faster than for larger firms. The rate of growth in spending for smaller firms (those with under 100 employees) is likely to rise at much faster rates than for larger firms. Across all firms, health care expenditures will continue to rise faster than wages. Over the next six years, the smallest firms could see annual increases in premiums of 10 percent or more per year.

MYTH 6 ñ Large firms will continue to generate savings over the next two years.

REALITY ñ Even among these firms, health care spending will increase sharply as managed care plans attempt to increase premiums in attempt to shore up shrinking operating margins.

MYTH 7 ñ Managed care has helped control health care spending nationally.

REALITY ñ In 1996, national health expenditures are estimated to have exceeded $1 trillion and are projected to rise to nearly $1.5 trillion by the year 2002, an average increase of 6.5 percent per year. Although managed care had an initial impact in the mid-90s on slowing the rate of escalation in health care spending, this appears to be a one-time savings as managed care companies try to recoup lost revenues from under pricing by increasing premiums to purchasers.