Eighth Annual Wall Street Comes to Washington Conference

1
Eighth Annual Wall Street Comes to Washington
Conference

• June 18, 2003
• Joy M. Grossman, Ph.D.

2
Recent HSC Studies

• Strunk and Ginsburg, "Tracking Health Care Costs
  Trends Stabilize but Remain High in 2002", Health
  Affairs,Web-exclusive, June 11, 2003 and Data
  Bulletin No. 25, June 2003
• Lesser and Ginsburg, Health Care Cost and Access
  Problems Intensify Initial Findings From HSC's
  Recent Site Visits, Issue Brief No. 63, May
  2003
• Devers, Brewster, and Ginsburg Specialty
  Hospitals Focused Factories or Cream Skimmers?,
  Issue Brief No. 62, April 2003

3
Rapid Spending Growth Threatens Affordability of
Health Insurance

• Health care cost trend declined slightly in 2002,
  but insurance premium trend continued to
  accelerate in 2003
• Increased consumer cost sharing but few other
  strategies to control costs
• Provider strategies exacerbating cost growth
• Consumer financial burden and uninsurance rates
  likely to increase

4
Overall Cost Trend Declined Slightly But Remained
Very High
Sources Health care services Milliman USA
Health Cost Index (0 deductible) U.S.
economy Gross Domestic Product (GDP)
5
Components of Cost Trend

• Hospital care the most important contributor
• Use trend has moderated
• Price trend continues to accelerate
• Prescription drug trend has slowed but still high

6
Key Health Care Cost Drivers

• Short term
• Retreat from tightly managed care
• Growing provider leverage
• Labor shortages
• New drugs and advertising
• Key long term driver is new technology

7
Premium Increases Grow Even As Employees Face
More Cost Sharing

• Insurance premiums in 2003 higher than in 2002
• 15 percent net increase vs. 13 percent
• Underwriting cycle has not yet turned
• Benefit buy down also grew between 2002 and 2003
• 3 percent vs. 2.5 percent
• PPO deductible, drug copays

8
Employers Aggressively Shift Costs

• Employee cost sharing more widespread and
  affecting more services than two years ago
• Unionized firms and public sector employers
  adopting premium sharing
• For those with premium-sharing already,
  increasing copays and deductibles and moving to
  coinsurance

9
Some Indications of Eroding Coverage

• Some reports of small firms dropping coverage
• Incentives for employees to drop dependent
  coverage or switch to spouses plan

10
Managed Care Improved Profitability But Few
Strategies for Cost Control

• Plans financial performance has improved
• Few traditional cost-control strategies remain
  viable
• Experimentation with product design but limited
  take up
• Tiered provider networks
• Consumer-directed health plans

11
Provider Strategies Contributing to Cost Pressures

• Hospitals maintain leverage in contract
  negotiations
• Competition for profitable specialty and
  ancillary services heats up

12
Outlook

• Unclear if cost trend will continue to slow
  appreciably
• Turn in insurance underwriting cycle would slow
  premium trend
• Consumers likely to continue to face increasing
  financial burden and loss of coverage

13
HSC Wall Street Comes to Washington