Health Care Expenditures Rise Despite Drop in Utilization

According to the Health Care Cost Institute (HCCI), a nonpartisan research center, the growth in health care spending from 2009 to 2010 was primarily the result of higher prices rather than increases in utilization or intensity of health care services. HCCI released its first report on May 21, 2012, an analysis of data on 3 billion claims processed by carriers of employer-sponsored insurance (ESI) for beneficiaries under age 65. The carriers, who insured 33 million ESI beneficiaries in 2010, gave HCCI access to de-identified claims information so that researchers could study expenditures for privately insured patients. Most previous research on health care spending has been based on expenditures of government programs such as Medicare and Medicaid.

The study compares spending and utilization on four types of services: inpatient admissions, outpatient visits, procedures performed and prescription drugs. The drugs were classified by therapeutic class. The insurers’ expenditures were measured in payments per beneficiary, while utilization was measured in services per 1,000 beneficiaries. The beneficiaries’ expenditures were measured in absolute dollars, as a percentage of the total cost, and per capita. Spending for premiums was not addressed.

Key findings:

Health care prices continued to rise faster than inflation. The average total spending per beneficiary was $4,255 in 2010, an increase of 3.3 percent over the previous year—and more than twice the 1.6 percent increase in the consumer price index. Both insurers and beneficiaries paid more for each service.

Spending in every category of service rose between 2009 and 2010. As a result, total spending by the insurers grew even though the number of insured beneficiaries declined 0.8 percent, from 157.8 million to 156.5 million between 2009 and 2010.

Prices rose even when utilization fell. Beneficiaries of ESI used fewer inpatient hospitalizations in 2010 (60.9) than in 2009 (63.0). This 3.3 percent decline was consistent with the previous three years. Inpatient admissions of ESI beneficiaries have dropped nearly 7 percent since 2007 (65.4 per 1,000 insured persons). But average spending per capita on inpatient admissions grew from $13,954 to $14,662. Outpatient facility visits per 1,000 beneficiaries also fell from 321 in 2009 to 311 in 2010 (a 3 percent decrease), but the average cost per visit rose 10 percent.

When utilization or intensity increased, prices increased faster. The researchers measured both the raw number of visits or procedures and the complexity or intensity, and they considered the extent to which changes in the intensity of services, or case mix, affected payments. Measuring the intensity or complexity of services using relative weights, they found that the intensity of some services, such as outpatient procedures and professional procedures, actually had declined by 2.3 percent and 0.5 percent, respectively. But the prices for the services continued to grow; what the researchers called the “intensity-adjusted price” actually rose.

And when the intensity of services increased because the services had become more complex, expenditures for each service rose faster. The intensity of inpatient hospital admissions grew 0.7 percent, but the price per service grew by 4.6 percent in 2010. HCCI found that even after adjusting for increased complexity of services, the prices of several services rose significantly—emergency room services by 7.1 percent, administered drugs by 7.6 percent, and radiology services by 8.5 percent.

Out-of-pocket costs rose more than insurers’ payments. Beneficiaries’ share grew both absolutely and as a percentage of the total cost of services. Insurers’ per capita payments rose 2.6 percent in 2010.The average out-of-pocket cost for inpatient admission was $700 in 2010, an increase of 10.7 percent over 2009. Beneficiaries’ spending for outpatient facility visits rose by the same percentage. And their out-of-pocket costs for procedures rose 8.3 percent for outpatient services, 7.8 percent for professionals’ fees. Overall, the amount of total spending paid by beneficiaries grew 3.7 percent in 2010.

Beneficiaries paid a larger percentage of costs for services in 2010. In 2009, insurers paid 84.4 percent of covered costs for ESI beneficiaries, while the beneficiaries themselves paid 15.6 percent. In 2010, however, the insurers’ share was 83.8 percent, while the beneficiaries paid 16.2 percent.

HCCI’s report says clearly that more of the increase in health care spending for individuals with ESI results from higher prices rather than increased utilization or intensity of services. What it doesn’t tell us is why. There is no information about providers’ costs, so we don’t know whether the higher prices result from, for example, increased malpractice or casualty insurance premiums, high costs of investing in electronic record systems, or compensation for executives and consultants.

HCCI’s use of a per capita measure of beneficiaries’ share of spending doesn’t reflect anyone’s reality. Especially not Amber Cooper’s.