This is what passes for good news in health care: U.S. spending will increase by only 9% to 10% in 2005, about the same rate as last year, according to UBS Securities (UBS ). That's still three times the rate of inflation, but at least it's less than the gains the nation saw in the first two years of this century, when costs rose by 12% to 13% a year.
All told, the U.S. will probably spend an estimated $1.9 trillion on health care in 2005, $100 billion more than the prior year. That's 15.7% of the gross domestic product. Despite such mammoth sums, hospitals will continue to struggle to stay solvent, employers will continue to face higher insurance premiums, employees will continue to shoulder a higher percentage of those premiums, and insurers -- well, insurers will continue to do very well, thank you, because they get to pass on their higher costs to the policy holders. Though not, of course, to the 45 million people who are uninsured -- 15.6% of the population.
At some point, and probably in the not-too-distant future, this level of spending will almost certainly become unsustainable. Expensive new drugs and medical technologies, a growing number of uninsured, and an aging, overweight population virtually guarantee cost increases will climb back to the 12% to 13% range in a few years. By 2010, UBS Securities estimates that health care will consume 17.4% of the GDP. "In my view, the pressure is not off costs at all," says William McGeever, a UBS health-care analyst. "I see nothing on the horizon that will moderate increases."
All of this might be O.K. if we were getting maximum bang for all those bucks, but we're not. Other industrialized nations, which have universal health coverage, spend less of their GDP on health care -- 8% to 10%. Yet they rank well above the U.S. in average life expectancy and infant mortality rate, standard measures of a nation's health. The U.S. ranks in the bottom quartile of all industrialized nations on those two measures.
Nor does the U.S. do well on more specific quality measures. In a study of a broad range of procedures in five highly industrialized nations, released last spring in the well-regarded journal Health Affairs, researchers determined that the extra spending on health care in the U.S. is "not buying better experiences with the health care system, with the exception of shorter waits for nonurgent surgery." That conclusion was backed up by a study released in December by Veteran's Administration researchers: They found that only 51% of patients nationwide receive med- ically recommended care for their conditions. So much for the oft-heard claim that the U.S. has the best medical system in the world.
Despite this dire situation, there are no serious proposals in Washington to redress the miserable cost/quality equation. President George W. Bush's main health-care reform initiative, the introduction of tax credits for Health Savings Accounts, is likely only to siphon off healthy adults from existing insurance plans, making it harder to offset the costs of treating the sick. At the same time, the shift to high-deductible policies by many employers is likely to cause some consumers to delay health care until their conditions become serious -- and more expensive to treat.
If change is going to come, it needs to be driven by the companies now picking up the nation's health-insurance tab, as well as their beleaguered employees. The annual Towers Perrin Health Care Cost Survey predicts that employers can expect, on average, an 8% increase in health-care costs in 2005, to an annual rate of $7,761 per employee. Those employees will see their share of insurance premiums increase by an average of 14%, while benefits will be reduced by 2%.
A Henry J. Kaiser Family Foundation survey found that the cost of job-based health coverage has risen 59% since 2000, while the percentage of U.S. workers who receive health benefits through their jobs has dropped from 65% to 61%. Paying more, getting less. Isn't it about time that policymakers -- and the people who vote for them -- come up with a better way?
By Catherine Arnst