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HMO
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What is driving
up the cost of health care?
Businesses
in Virginia have been adversely affected by a number
of economic forces in recent years. One cost of doing
business that is escalating, outpacing the current rate
of single-digit inflation, has been employee health
care benefits. This has led many business leaders to
ask: What has contributed to the rise in health care
costs, and what can be done to address the problem?
To
identify the key factors behind rising health care costs,
the American Association of Health Plans (AAHP) commissioned
an independent study in the early part of 2002. The
study, written by national consulting firm PricewaterhouseCoopers
(PwC), demonstrated that new health care spending increases
are being driven by factors other than quality of care
and improvement of service. Rather than focusing on
where new health care dollars are being spent, the study
identifies the individual drivers behind the spending
increases. This data provides insight into why costs
are rising and points to possible solutions.
PwC
calculated the size of the overall growth in health
care premium costs between 2001 and 2002 to be 13.7
percent. The PwC study finds — not surprisingly
— that general inflation and new technology, including
prescription drugs, have played a significant role in
higher costs. But a substantial portion of each new
dollar spent on health care — 27 percent —
is driven by factors such as lawsuits, government mandates
and regulations, and fraud. According to PwC, these
added costs — $18 billion — could have insured
6.8 million more Americans. That level of impact illustrates
that policymakers need to address these drivers in order
to help regain control over rising costs.
Noteworthy,
according to the PwC study, was the finding that without
the cost-containing influence of managed health care,
U.S. health care spending would be $182 billion higher
over the next five years, or about an additional $1,600
per policyholder. But health plans can't do it alone;
government must do its part to keep health care affordable.
Drawing upon findings from the PwC study, what should
business leaders concerned about rising health care
costs be telling policymakers? Reform the out-of-control
litigation system. Place a moratorium on costly new
mandates. Support real competition among hospitals and
doctors in the health care marketplace.
Affordable
health care is not only important to businesses, but
to their employees who, because of rising health care
costs, are in many cases paying more out of pocket for
their health coverage. Moreover, with over 1 million,
or nearly 15 percent, of Virginia residents lacking
health insurance, the impact of rising health care costs
will continue to have an adverse effect on initiatives
to reduce the ranks of the uninsured.
As
a service to our readers, Virginia Business presents
a directory of the major managed
health plan providers in the state. For additional information
on each company listed go to www.vahp.org.
Return to Virginia Business - September 2002
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