Health cost inflation moderated in 2005, but this is no time to get out the party hats. Yes, as my late grandma used to say, its better than a poke in the eye with a sharp stick. But as I used to reply to her, so are a lot of unpleasant things.
The slowdown in spending inflation in that year is attributable primarily to a sharp downturn in spending increases on pharmaceutical drugs and Medicaid. The CMS says that the drug cost slowdown was fed by increased use of genericsa result of restrictive formularies and increased cost sharingand Medicaid cost controls.
The latter savings may well be lost with the move of most government drug coverage to Medicare Part D (which didnt take hold until 2006), where the kinds of cost controls that states implemented in the past few years are lacking. As evidence, the small share of Medicare drug spending in 2005 rose 19.7% from the prior year, while Medicaid drug spending rose 2.8%.
Overall Medicaid inflation eased in 2005 because we had emerged from a recession and because states cut provider payments and restricted services. There may have even been some disease-management savings thrown in there.
The fact is that despite a dollop of good news, none of the long-term trends looking forward from 2005 are positive. The 6.9% overall cost increase still outpaced gross domestic product and was more than double the growth in real wages. There is scant evidence that we are making progress in delivering more cost-effective, quality care. Study after study tells us that much of the care that is provided is substandard, from inappropriate procedures to duplicative tests, lost records and medical errors. None of those fundamental flaws appear to have diminished in 2005.
Furthermore, the rising costs of hospital care showed no signs of abating that year. And the baby boomers are set to make their first baby steps into retirement in four years, with the demographic bulge coming a few years later. Even if the boomers turn out to be healthier, there will still be tens of millions more seniors seeking basic services.
There were some other interesting data bits in the study. For those who challenged a prior assertion on this page that providers take advantage of Medicare, take note that although total U.S. spending on physician services increased by 7%, under Medicare it jumped 9.5%. Study authors noted that the rapid increases in the volume and intensity of physician and hospital services to government programs continues nearly unabated.
Overall Medicare spending grew by 9.3%, on top of even larger increases in prior years, none of which reflect the added costs of Part D. Home health spending grew by 11.1% and nursing home rehabilitation services grew 7.3%.
In fact, reviewing the report, you cant help but come away thinking that for all of the debate over free-market healthcare vs. a single-payer system, a fundamental truth is overlooked: Federal, state and local governments pay nearly half of the healthcare tab already, and their share is rising fast. Yes, government administration of healthcare costs less, but it also fails to adequately control utilization.
Whether public or private spending is involved, we have to get at the root causes of health-cost inflation. We need to end adverse incentives to overtreat, push adoption of evidence-based medicine, encourage preventive care and team approaches to treatment of serious illnesses, and demand public reporting of medical errors and overall care quality. Until we accomplish those and many other reforms, unsustainable health cost inflation will continue, and with it will come a rising tide of uninsured and underinsured Americans.