According to a study published in Health Affairs and reported by Fierce Healthcare, health care spending in the US rose by 7.9% in 2004, a slight decrease in the rate of increase from 2003’s 8.%. The US now spends 16% of GDP on health care; in comparison the next most profligate health care spender, Switzerland, spends a mere 11.1%.
By way of comparison, the overall US economy grew by 4.2% in 2004, so health care inflation was not quite twice as high.
Health care expenditures per person are now $6280…
One of the reasons for the drop in the rate of growth was a slowing in prescription drug inflation, which was up 8.2% in 2004. This was the first year drug cost inflation failed to break the double digits.
Conversely, spending on physicians increased by 9%, a significant bump up over historical rates. This was driven in large part by a big jump in Medicare’s payments to docs (11.1%). In turn, Medicare’s costs were driven by significantly higher utilization (docs ordered more tests, services, and procedures than the previous year).
Before we start jumping for joy at the slowing in overall medical inflation, consider this from California HealthLine:
“Paul Ginsberg, president of the Center for Studying Health System Change, said slowed spending increases in 2004 should be viewed within the context of abnormally high rates of growth in the immediately preceding years, when consumers forced insurers to ease restrictions on managed care.
This reminds me of the guy who is pounding his head into the brick wall, just because it feels so good when he stops. The relief we may be feeling is not the absence of pain, it is just a slight decrease. And we only feel it because last year’s pain was so bad.
What does this mean for you?
Most troubling is the increase in utilization for Medicare. The Medicare fee schedule has long been a bone of contention, and physicians may be increasing services as a way to make up for the poor per-service payment.
This cost shifting will affect private payers.

Several state legislatures are considering taking action in an attempt to force larger employers to offer health insurance to their employees. While there is considerable variation among the states, most appear to require large employers to dedicate around 10% of payroll dollars to health benefits.
I’m not sure this is Constitutional, legal or advisable, but it is clear that the level of frustration experienced by the middle class (read – voter) is growing. And their legislators are acting upon that frustration. According to the New York Times, the effort “underscores state lawmakers’ growing frustration with the progress of federal health care reform and the success of a union effort to turn Wal-Mart into a symbol of everything that is wrong with the system.”
It is remarkably easy to throw stones at Wal-Mart – while I won’t fault their desire to succeed in a capitalist economy, I do have problems with the company’s lobbying for state financial incentives, tax subsidies and abatements while thousands of their employees, who can’t afford or are not eligible for Wal-Mart-sponsored health coverage, receive their health insurance through Medicaid. This well-documented “double-dipping” at the taxpayers’ expense is highly unethical and inappropriate.
What does this mean for you?
While the effort to force employers to provide health insurance is doomed to failure, the larger message is clear – voters want health care reform. Expect this issue to finally rise to the top in elections this fall.

Matthew Holt has bravely published his predictions for 2006, with some surprising, some incendiary, and some intriguing perspectives. His observations on efforts to electronicize (my word not his) many of the patient – provider – payer interactions are worth reflecting upon.
One of the more intriguing is Matthew’s observation that payers are beginning to integrate clinical and billing data. Here’s the quote:
“2005 saw some of the first steps by major insurers to integrate what they know about patients’ clinical information with their administrative activity. Using technology from WebMD on an ASP basis, Empire BCBS has led the way here putting its members’ patient records online. It looks like the rest of the Wellpoint organization (which bought Empire last year) will adopt the technology this year. That will force competitors like United to follow suit.”
As an ex-United person, and one who still can’t understand how United could be viewed as the best managed care company in the country, I welcome the observation – if nothing else it validates my skepticism re UHG.
Matthew and I are both pretty skeptical about Consumer Directed Health Plans; while I believe they will grow substantially, I (and he) don’t see them as anything other than cost-shifting to individuals from employers and payers. That is not a value statement, but a definition. My bet is CDHPs will enjoy a brief but rapid growth in popularity, and may well represent the last gasp of the private sector before they implode. And when the middle class enrollees in CDHPs and their plan sponsors see that they do not resolve the underlying problem in health care (cost will continue to increase dramatically), the pressure on politicians to get this fixed will force change.
The rest is well worth a read and some reflection.
Here’s hoping I’m wrong and CDHPs work very well, health care costs come down, and access is dramatically increased. After all, the White Sox won the Series, so miracles do happen.

The dot-com boom and bust has had an impact on San Francisco Bay-area residents’ utilization of health care. According to a study by the Kaiser Family Foundation reported in California HealthLine; 20% of residents surveyed have “skipped or postponed medical care because it was too expensive

For Medicare physician reimbursement, it is indeed the eleventh hour. House and Senate conferees are considering a compromise bill that would raise physician reimbursement by 1% in 2006, against the scheduled 4.4% decrease that is slated to go into effect if no action is taken. This decrease was part of previous Medicare and budget bills, and allowed Congress and the Administration to claim lower costs for Medicare programs when these bills were originally passed. Now, Congress, faced with a vocal and engaged physician community, is forced to either increase reimbursement or deal with the fallout from physicians dropping out of Medicare.
The AMA is quite active in this, lobbying everyone with a pulse on Capitol Hill in an effort to get the increase passed and kill a proposed pay-for-performance initiative.
According to the Washington Post, “Congress is considering a pay-for-performance proposal that in 2007 would cut 2% of Medicare reimbursements if a physician did not report quality data to the federal government