Rising health care costs are changing the market
Rising health care costs are changing the market
Drug price boosts spurring new trends
National health care expenditures increased 5.6% between 1997 and 1998, up from 4.7% between 1996 and 1997, reaching a record high of $1.1 trillion in 1998, reports the Washington, DC-based Employee Benefits Research Institute (EBRI).
Health care spending as a percentage of gross domestic product has stayed at a constant 13.5% between 1993 and 1998, paralleling the overall growth of the economy, says EBRI.
However, the Health Care Financing Admini-stration (HCFA) predicts national health care spending could start rising rapidly, reaching 16.2% of the gross domestic product by 2008.
High prescription costs
A major driver behind that projected increase in spending is soaring prescription drug costs, which have been increasing 15% to 20% a year. Currently, "there is no end in sight" for those hefty drug price hikes, says Randall Abbott, a consultant with Watson Wyatt Worldwide in New York City.
Adding to the cost pressure is the fact many managed care plans are now demanding — and receiving — premium hikes in the 10%-12% range. As drug companies and HMOs dramatically increase their prices, providers are responding by raising their rates.
Doctors are bargaining harder because their recent pay raises have not been especially great, notes Abbott.
Another new trend is that providers and insurers alike are more focused on shoring-up profitability rather than lowering prices to increase market share, say experts.
Helping to support that move is the current tight labor market and strong economy that make employers more willing to absorb rate hikes rather than disrupt employee morale by reducing benefits or passing more of those cost increases onto workers.
Rates for other types of health plans also have been climbing recently. Point-of-service plans and preferred provider organizations (PPO), for instance, have averaged fee increases between 10% to 12% this year.
In another shift that providers would be smart to pay attention to when considering which organizations to contract with, prompted by employee preferences, more employers are moving to open-ended products like PPOs and away from more restrictive HMOs.
"Right now, the HMO idea is just not selling. That market seems to be dead in the water," says Bob Pures, senior vice president at Horizon Blue Cross & Blue Shield of New Jersey in Newark.
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