Zero-sum game

In­fla­tion eats decade’s worth of salary in­creases

Modern Healthcare - - The Week In Healthcare - Rich Daly

The 10 years lead­ing up to the pas­sage of the Pa­tient Pro­tec­tion and Af­ford­able Care Act saw ris­ing health­care costs con­sume work­ers’ salary in­creases and more of the na­tion’s debt, ac­cord­ing to new re­search. And early in­di­ca­tions sug­gest the pat­tern could con­tinue.

Nearly all in­come gains for the av­er­age Amer­i­can fam­ily from 1999 to 2009 were con­sumed by med­i­cal in­fla­tion, ac­cord­ing to a study re­leased last week by RAND Corp. re­searchers. The study—pub­lished in Septem­ber’s Health Af­fairs— found that the an­nual in­come of the av­er­age Amer­i­can fam­ily of four in­creased 30% to $99,000 in 2009 from $76,000 in 1999. But nearly all that in­creased in­come was con­sumed by higher health­care costs, ac­cord­ing to the study.

The study con­cluded that the av­er­age fam­ily would have had $545 more each month in dis­pos­able in­come by 2009 if med­i­cal in­fla­tion had matched gen­eral in­fla­tion. But the monthly in­crease was re­duced to $95 be­cause of in­creases in health in­sur­ance pre­mi­ums, out-of-pocket health spend­ing and taxes for health­care.

Even the rel­a­tively small in­creases in in­come in that time frame were be­cause of tax-rate cuts, the study found, which also ex­ac­er­bated deficit spend­ing to cover the cost of the fed­eral govern­ment’s health­care pro­grams.

Con­trol­ling over­all in­creases in med­i­cal in­fla­tion was one of the stated goals of the 2010 fed­eral health­care law, but early in­di­ca­tions sug­gest that may not hap­pen.

“It’s got­ten to the point where em­ploy­ers can’t ab­sorb the cost in­creases and are pass­ing more of them along,” said Mark Ol­son, a se­nior con­sult­ing ac­tu­ary at Tow­ers Wat­son. The con­sult­ing firm last month re­leased a sur­vey in­di­cat­ing em­ploy­ers will con­tinue to shift health in­sur­ance costs to em­ploy­ees through in­creased in­sur­ance pre­mi­ums, in ad­di­tion to rais­ing em­ployee co­pay­ments, de­ductibles and coin­sur­ance.

Those in­creased em­ployee in­sur­ance costs, he said, are some­what fu­eled by early pro­vi­sions of the health­care law, such as man­dated ex­pan­sion of in­sur­ance ac­cess for em­ploy­ees’ chil­dren up to age 26, cov­er­age of pre­ven­tive ser­vices with no en­rollee cost-shar­ing and pro­hi­bi­tion on life­time cov­er­age lim­its. Whether the law will slow the rise of health­care costs re­mains un­clear.

David Auer­bach and Arthur Kellermann, the au­thors of the RAND re­search, noted that the health­care law’s ef­fort to curb health­care cost growth by lim­it­ing fed­eral health spend­ing to no more than 1 per­cent­age point above gross do­mes­tic prod­uct wasn’t bind­ing.

Sup­port­ers and op­po­nents of the fed­eral law noted that the stud­ies re­in­force pre­vi­ously iden­ti­fied med­i­cal in­fla­tion trends. The law’s back­ers main­tain that it will even­tu­ally re­duce in­fla­tion through new mod­els of pay­ment and de­liv­ery, the avail­abil­ity of af­ford­able in­sur­ance cov­er­age in state ex­changes and other pro­vi­sions. Other health­care ob­servers are less op­ti­mistic about fu­ture cost trends.

Robert Zirkel­bach, spokesman for Amer­ica’s Health In­sur­ance Plans, said in an in­ter­view that the law will ac­cel­er­ate such in­creases in the cost of med­i­cal cov­er­age be­cause its pro­vi­sions do not ad­dress the un­der­ly­ing med­i­cal in­fla­tion that drives in­sur­ance rates (See story, p. 6).

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