Health Care Spending Races Ahead of Income Increases

Spending on health care rose by 8.2 percent last year, outpacing spending increases in other areas and outstripping average growth in income, a new study says.

The spending increase was slower than in past years - it peaked at 11.3 percent in 2001, for example - but it outpaced gross domestic product, which increased by 5.6 percent, Forbes.com reported. In the most recent 12-month period, prices for health care rose by 4.3 percent, compared with 2.8 percent for prices overall, according to the U.S. Bureau of Labor Statistics.

"If health care spending continues to grow at a significantly faster rate than workers' incomes - and there's every sign that it will - health insurance will become unaffordable to more and more people," said Paul Ginsburg, co-president of the Center for Studying Health System Change (HSC) and a co-author of HSC's study, which was published in Health Affairs, a journal covering health policy.

The U.S. Census Bureau says that in 2003, 45 million people, or 15.6 percent of the population, had no health insurance coverage. Employers are cutting back on health benefits too, raising copayments and deductibles and limiting the range of benefits offered.

The study also showed the biggest increase was for hospital outpatient spending, rising by 11.2 percent. Hospital inpatient spending rose by 6.2 percent. Prescription drug spending grew by 7.2 percent. The study also says that Americans are demanding more health care services, despite the high price.

Small businesses feel the squeeze of health-care costs, but also recognize that solid health benefits help them compete for talented employees. One business group, the Greater Fort Wayne Chamber of Commerce, helps its members by partnering with Physicians Health Plan of Northern Indiana to provide a 5 percent discount off the cost of health coverage for members with 2 to 26 employees. Last year, Mishiana Accounting Solutions would have seen the cost of its health plan rise 8 percent, but because of the discount, the increase was only 3 percent, vice president Denise Phillips told the News-Sentinel of Fort Wayne.

HSC's Ginsburg told the Wall Street Journal that he expects hospital spending to increase at a brisk pace this year, while growth in spending on prescription drugs may slow. "I don't think there's much basis for expecting health-care cost trends to be low for a very long time," he said, "because advancing medical technology is driving up costs."

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