Newspaper article THE JOURNAL RECORD

Health Care Inflation `a No Show'

Newspaper article THE JOURNAL RECORD

Health Care Inflation `a No Show'

Article excerpt

WASHINGTON -- The engine of runaway health care costs that powered the inflation of the 1980s and early 1990s now is in cruise control.

Employers face just a modest increase -- no more than 1-to-2 percent -- in the cost of covering the health care expenses of their workers next year, according to analysts. Average premiums actually dropped this year from the 1995 level.

That's a stark contrast to the 19 percent average annual climb in premiums that Foster Higgins, the employee benefit consulting firm, said companies had to pay in 1988. Next year "will be our fifth year of moderate health-cost increases," said John Erb, a principal in the firm.

The cooling of health care inflation has broad economic ramifications. It allows employers to give their workers higher wages without feeling the need to recapture all of the added cost through higher prices. Over the past year, worker wage increases have exceeded the inflation rate for the first time in decades.

That price restraint, in turn, lessens the pressure on the Federal Reserve to raise interest rates to keep overall inflation in check. After Friday's report that the economy added a fewer-than-expected 193,000 jobs in July, and average hourly earnings declined 2 cents during the month, many analysts now believe the Fed will refrain from raising rates at its next scheduled meeting, Aug. 20.

"Inflation is still a no show," said Robert Dederick, an economic consultant at Northern Trust Co. in Chicago.

Health care's contribution to the serene price scene has multiple roots.

First, health maintenance organizations, which now treat about 60 million Americans, are muscling doctors and hospitals to give discounts and pay for the reduced charges by remaking themselves into cost-efficient providers of care.

Doctors stand to benefit from courses in business administration. …

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