Bloomberg News

Health-Care Price Rise Poses Challenge for U.S. Overhaul

September 25, 2012

Medical prices accelerated faster than some projections last year and the number of uninsured is rising, according to data that show the U.S. goal of expanding health care is veering onto a more difficult road.

Costs for people with employer-sponsored insurance plans jumped 4.6 percent in 2011, more than the government’s 3.9 percent estimate for the entire health system, the Health Care Cost Institute, which analyzed claims from UnitedHealth Group Inc. (UNH:US), Aetna Inc. (AET:US) and Humana Inc. (HUM:US), said today. A study by the U.S. Centers for Disease Control and Prevention found the number of people without insurance climbed 1.7 percent in the first quarter of 2012.

The data pose a challenge for the Obama administration as it carries out the 2010 Affordable Care Act, which promises to expand coverage to 30 million Americans starting in 2014 and trim health costs. The CDC reported that 47.3 million people lacked insurance, and the health institute said hospitals and doctors raised prices at a clip that outstripped demand.

“If you don’t bend the cost curve, ultimately insurance gets more expensive,” said Douglas Holtz-Eakin, the president of the American Action Forum, a Washington-based advocacy group that opposes the health law. “It’s a big problem for the Affordable Care Act.”

The overhaul law may be contributing to higher costs, said Martin Gaynor, an economics professor at Carnegie Mellon University and chairman of the Washington-based Health Care Cost Institute. The act tries to limit insurers’ administrative expenses and profits by requiring companies to spend at least 80 percent of their premium revenue on medical services. To meet that threshold, they may be letting prices rise, he said.

‘Unintended Consequences’

“Like anything else, sometimes these things can have unintended consequences,” Gaynor said in a telephone interview.

Health-care costs for 40 million workers covered by UnitedHealth, Aetna and Humana -- three of the four largest U.S. health insurers by revenue -- increased to $4,547 a person, from $4,349 a year earlier, according to the institute. The group, created last year to analyze claims data from major insurers, found that charges for hospital emergency rooms rose 9.1 percent in 2011, after adjusting for a reduction in the intensity of care they delivered.

That means emergency rooms “did less for more money,” said David Newman, executive director of the institute.

The law also has encouraged consolidation among hospitals and doctors, which may lead to greater pricing power, said Holtz-Eakin, who once who ran the nonpartisan Congressional Budget Office after leaving the Bush administration in 2003.

Incomplete Picture

Growth of health insurance premiums has slowed since the health law, said Erin Shields Britt, a spokeswoman for the U.S. Health and Human Services Department. In the decade before the law’s passage, premiums increased about 8.7 percent a year, on average, Britt said, citing data from the Kaiser Family Foundation. Premiums rose 4.5 percent in 2012, Kaiser said.

The health law’s limits on insurer profits and administrative costs have saved consumers about $2 billion and families will save an average of $2,000 a year on health plans bought from new government-run marketplaces the law creates in 2014, Britt said. “It is clear that in recent years health care cost growth has slowed,” she said in an e-mail. “The health care law is already saving money for consumers.”

Temporary Action

Rising costs in 2011 may have been a one-time phenomenon, said Charles Roehrig, director of the Altarum Institute’s Center for Sustainable Health Spending in Ann Arbor, Michigan. His group calculates that spending for the health system increased 5.2 percent in 2011, and this year will rise about 4 percent, similar to the rates in 2010 and 2009.

“I might be dismayed if the data for 2012 showed it was going up even faster still,” Roehrig said by telephone.

The report from the Atlanta-based CDC showed the number of people without health insurance rose to 47.3 million in the first quarter, from 46.5 million a year earlier. The finding contrasts with a Sept. 12 Census Bureau report that said the number of uninsured Americans declined by more than 1 million in 2011 from 2010.

The CDC data, collected from a survey of about 35,000 households conducted throughout the year, is considered “preliminary” and the first-quarter sample has “larger variances” than full-year data, Karen Hunter, a CDC spokeswoman, said in an e-mail.

While the two federal agencies use different methodology to gather their data, both documented a decrease in the number of people ages 19 to 25 who lack insurance. The CDC said that 27.5 percent of people in that age group were uninsured in the first quarter.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • UNH
    (UnitedHealth Group Inc)
    • $78.31 USD
    • -1.20
    • -1.53%
  • AET
    (Aetna Inc)
    • $70.03 USD
    • -1.60
    • -2.28%
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