Health-Care Costs Rise Faster Than U.S. Inflation Rate

Doctors, hospitals and drugmakers raised prices faster than inflation in 2010, driving U.S. health costs higher as fewer Americans sought care after the recession.

Spending on workers covered on the job grew 3.3 percent per person in 2010, twice the general inflation rate, according to a report today from the Health Care Cost Institute, a Washington group that examined data from insurers including UnitedHealth Group Inc. (UNH) and Aetna Inc. (AET) While costs increased, enrollment in employer-sponsored plans declined, the researchers said.

U.S. medical spending almost doubled in the last decade, reaching $2.6 trillion in 2010, according to federal government statistics. Today’s data suggest policymakers may have to consider the market power of hospitals and doctors to try to tame that growth, said Martin Gaynor, an economist at Carnegie Mellon University in Pittsburgh who helped write the report.

“Most of the increase was driven by increases in price,” Gaynor said in a telephone interview. “We see utilization falling moderately and the spending is still going up.”

Researchers gained access to 3 billion claims from UnitedHealth, Aetna and Humana Inc. (HUM), three of the four biggest insurers by enrollment, as well as from Kaiser Permanente, one of the biggest nonprofit plans. It’s the largest set of private insurance data ever assembled for study, Gaynor said.

While the insurers provided “seed funding” for the Washington-based institute, they’ve put no limit on what questions researchers can ask and have no control over what they produce, Gaynor said. The group plans to update the database with more-recent claims and make the information available to researchers around the country for further study.

Slowing Growth

Today’s report found the growth in spending for employer-backed plans slowed in 2010 for the third year in a row. Even so, the average price of prescription drugs rose 3 percent, inpatient admissions cost 5.1 percent more and the price of outpatient visits increased 10 percent.

At the same time, the number of covered employees fell 1 percent to 156.5 million and there was no sign members were any sicker that year, on average, researchers said. Usage rates declined for inpatient admissions, emergency room visits, primary-care office visits and radiology procedures.

Future studies will examine why prices rose. Statistics for 2010 are the most recent year available.

“There’s been an awful lot of consolidation in certain sectors of the health-care industry, and we know that tends to lead to higher prices, but we can’t draw any conclusions yet,” Gaynor said.

The research will add to a debate over whether the recent slowdown in medical spending is the temporary result of a bad economy or a more lasting shift due to higher deductibles and other changes, Gaynor said. While insurer costs climbed 2.6 percent in 2010, employees’ share rose by 7.1 percent.

UnitedHealth, the largest U.S. health insurer, is based in Minnetonka, Minnesota. Aetna is based in Hartford, Connecticut; Humana in Louisville, Kentucky; and Kaiser Permanente in Oakland, California.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

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

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