Pace of Rising Health Costs May Slow for US, Study Says - BusinessWeek

Cheap walk-up health clinics, lower costs for drugs and medical supplies and state laws requiring hospitals to publish prices may be helping to reduce the increase in U.S. health costs, a study found.

Health-care costs are expected to rise 7.5 percent in 2013, or 5.5 percent when accounting for changes in insurance benefits, such as higher deductibles and co-payments, PricewaterhouseCoopers said in its annual report on the nation’s medical cost trend. It is the fourth year in a row the annual cost increase is less than 8 percent.

“Four years of historically low growth is noteworthy and we may be at the start of a new normal,” said Ceci Connolly, managing director of the company’s Health Research Institute, in a phone interview.

The Health Research Institute projected 9 percent growth in costs in 2010 and 2011 and now estimates actual growth in those years was as much as 2 percentage points lower, according to the report. The U.S. annual inflation rate was 2.3 percent in April.

Health-care cost trends are important to consumers and employers, whose insurance premiums depend in large part on how fast prices increase in doctors’ offices, drug stores and hospitals. Cost trends also reverberate in Washington, where even small changes in the expected increase for large health programs such as Medicare, the U.S. plan for the elderly and disabled, may have big impacts on the government’s budget deficits.

Decade Trend

The government and independent analysts have noted lower health-cost growth since the beginning of the decade. National health spending grew 9.5 percent in 2002, according the U.S. Centers for Medicare and Medicaid Services, a rate that slowed to 3.9 percent by 2010, the most recent year available.

The reasons for the slowdown aren’t well understood, said Charles Roehrig, vice president of health-care economics at the Altarum Center for Sustainable Health Spending, a nonprofit research group in Ann Arbor, Michigan.

“Until we understand why it dropped in the first place we really won’t know with any confidence how much the moderation will hold in the future,” he said in a telephone interview. “I’m kind of the opinion that we may see some acceleration as we get into the next few years.”

The Pricewaterhouse researchers agree; they say the 2010 health-care law, which will expand insurance coverage to more than 30 million Americans without it beginning in 2014, may cause “a spike in spending.”

Changing Practices

Meanwhile, changes in the health industry and state laws may be holding down spending growth, Connolly said.

Hospitals, which have been expanding through consolidation and by purchasing doctors’ practices, have been able to negotiate lower prices for supplies such as cardiac stents and hip implants, the report said.

Individuals and employers shopping for insurance are increasingly choosing plans with high annual deductibles of $1,200 or more. About 13.5 million Americans were in such plans in 2011, according to a report yesterday from America’s Health Insurance Plans, an industry trade group, an increase of 18 percent from a year earlier.

People enrolled in the high-deductible plans, which can be paired with tax-free savings accounts for out-of-pocket health expenses, tend to shop around more for health care, Connolly said. They may also avoid or postpone costly care, she said.

Retail health clinics that employ nurse-practitioners instead of physicians for routine primary care such as vaccinations charge as much as 80 percent less than emergency rooms and are increasingly popular with patients, the report said.

Generic Drugs

The pharmaceutical industry saw drugs worth $28 billion in U.S. sales lose patent protection in 2011, leading to competition from cheaper generics. Another $26 billion worth of brand-name drugs will go off patent in 2012, according to the Pricewaterhouse report.

And in what Connolly said is a little-noticed development, 37 states now require hospitals and clinics to publish at least some information about their prices. These price transparency laws have helped control cost growth by making it easier for consumers to shop for health care and for insurers to negotiate rates with health providers, she said.

“This is being driven ultimately by the consumer,” Connolly said. “Individual patients who need to know what something is going to cost and what they’re going to pay for it, and employers, who still pay for much of the health care delivered in this country.”

The new U.S. health law hasn’t had as much effect, she said, because many of its provisions won’t start until 2014. The law may have “accelerated or accentuated” developments such as the growth of cheaper primary care clinics and increased coordination between hospitals and doctors, Connolly said.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

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