STUDY: PRIVATE HEALTH INSURANCE SYSTEM TO SUFFER STRAINS IN COMING YEARS

February 24, (BestWire) -
With national health-care spending expected to grow faster than the economy and private health-care premiums rising faster than per capita disposable income, a new government study projects that population growth will outstrip growth of enrollment in private health insurance in the next 10 years.

This means more and more people will be turning to government-funded health insurance and "strain the current system of employer-sponsored insurance coverage," according to the study by the Centers for Medicare & Medicaid Services."No one should find this surprising," said Robert Hartwig, chief economist at the Insurance Information Institute. "The government has long been the largest provider of health care, and that's only going to be more so the case in the future."

Growth of private health-care spending is expected to slow to 7.4% for 2004, down from 9% in 2001-2002. By 2005, growth of private spending will drop to 6.6% and in 2006 it will "sharply dip" to 3.1%, the study predicts. The average annual growth for private health-care spending is projected to be 6.4% for 2004-2014, below the 1965-2003 average of 9.3%.

The cause for this slowing of spending, according to the study, is slower growth in the use of medical care and the introduction of Medicare Part D, a new prescription-drug benefit under the public health insurance plan for the elderly, in 2006. Medicare Part D is "anticipated to have only a minor impact on health spending" but signifies a shift from private payers and Medicaid to Medicare.

The study predicts public funding of health care to exceed 49% by 2014. It currently is at about 46%.By 2014, total health-care spending is projected to be 18.7% of the gross domestic product, up from 15.3% in 2003, according to the study.Hartwig said the government-funded programs would be "filling the void left by the private sector." Many companies, he said, are cutting back on the employer-sponsored benefits they offer as a cost-saving tactic."There's a general cheapening of the benefits employers provide," Hartwig said, noting higher deductibles, less choice in doctors and more costs to employees as prime examples. "That can be expected to continue for the future."
"There's no end in sight for this trend," Hartwig said. "Many people believe there is a health-care crisis in this country, with millions without health care."Private health insurance premiums per enrollee will slow in growth from 9.9% for 2003 to 7.7% for 2004, the study predicts, citing a slowdown in the growth of the underlying costs of benefits per enrollee from 8.9% in 2003 to 7.7% in 2004.The premium cost per enrollee rose at an annual rate of 9.3% from 1998 to 2003, while per capita disposable personal income only rose by 5% a year.

The study predicts premium costs will continue to exceed personal income by 1.4 percentage points in the next 10 years, further straining the system.Out-of-pocket spending for health care grew to 7.6% in 2003, up from 6% in 2001-2002, the study said. The study expects out-of-pocket spending to "keep pace" with growth in private health insurance spending.Prescription-drug spending has slowed from 14.9% growth in 2001-2002 to 10.7% growth in 2003, reflecting several factors that include the now over-the-counter status of former prescription drugs, and is expected to rise to 11.9% growth for 2004, the study found."Health-care spending in this county is simply out of control," Hartwig said.

As the health insurance market swings more toward government-funded programs and farther away from employer-sponsored benefits, Hartwig said private health insurers would have to compete differently than what they do now."They're not necessarily cut off," Hartwig said. "But instead of providing through an employer-sponsored health care plan, they may end up bidding on public contracts."

BestWeek: February 25, 2005