Healthcare Inflation Is Looming-Again

Article excerpt

Potomac Sources

The healthcare crisis is more menacing than a decade ago.

It is 1992 all over again. The lion of healthcare inflation is rampaging through the U.S. economy, frightening employers and their workers. This season of open enrollment, when workers pick their health plan for the coming year, will be a depressing period as they anticipate paying more to receive a smaller package of health benefits.

When the newly elected 108th Congress convenes in January, the members will be arguing and debating about how to pay for a Medicare drug benefit and wondering if they can do something about the rising ranks of the uninsured. But partisan gridlock and the budget surplus that disappeared into a big deficit will cripple their efforts to deal with these issues.

The crisis facing America's healthcare system is even more menacing this time than it was a decade ago. Managed care was touted during the last crisis; now there is no magic bullet to cure things. Managed care moved millions of people into tightly controlled networks, squeezed payments to doctors and hospitals, and offered a temporary respite from inflation. Now, however, all the elements of a new systemic crisis are here:

Healthcare inflation is rising at double-digit rates, and employers are anxiously shifting the burden to their workers. The share of health insurance premiums paid by workers, which had dipped to 15% in recent years, is headed back to the previous level of 20%. Also, higher copayments and deductibles will take an even bigger bite from workers' paychecks.

* Small and medium-size companies, unable to handle the rising costs, are thinking about dropping health insurance entirely.

* The number of uninsured Americans is on the rise again, as the recession increases the ranks of the unemployed. In addition, growing numbers of people who are offered insurance at work are turning it down because of the higher costs. The ranks of the uninsured declined to 39 million two years ago, but now have reached 41 million.

* The days of saving money by cutting hospital reimbursements are over. Hospitals have merged and combined, creating bigger entities that can fight back against the insurers. Hospital wage costs are rising, as hospitals pay more to fill slots for nurses and technicians, who are in short supply.

* Even the biggest buyers of healthcare have lost their power to control costs. The federal government's Office of Personnel Management bragged that it was holding premium increases to 11 % for the new year, saying in a press release that "premiums increase less than national average" and talking about its "tough" approach to negotiations.

* Workers with strong unions will fight back against efforts to make them pay more for healthcare. There have been several strikes among public employees "and you're going to see more and more of that," predicted Gerald Shea, a top AFL-CIO official.

* The states, facing a collective budget deficit of $50 billion, are cutting back on spending for Medicaid precisely at the time when Medicaid rolls are increasing because of the recession. They are trimming benefits and restricting eligibility.


People who are cut from the Medicaid rolls will find their healthcare at hospital emergency rooms and clinics. Then the hospitals will try to pass these costs to the private payers who have insurance, which will mean higher bills for corporations to cover their workers. This syndrome goes round and round, with everyone trying to pass the burden to some other group. Experts can offer only worry. Everyone is grappling for a solution, but no one is confident that one will be easily found.

Managed care "did half of what it was supposed to do," said noted healthcare economist Uwe Reinhardt. "It reduced costs-mainly by getting discounts from doctors and reducing hospital length of stay. That was an obsession of theirs that I think was a mistake. …