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Appendix III
Purchaser Payer Background Information
Vanessa Walker
In 1999, the United States spent $1.2 trillion on health care, up 5.6% from the previous year.1 Growth in health care expenditures is estimated to increase 8.3% in 2000 and 2001. Total spending on health insurance premiums was $401 billion in 1999, up 6.5% from the previous year. Total spending for clinical research is estimated at over $13.4 billion for 2000.2 This estimate includes private sector spending on phase I-IV clinical trials ($6.7 billion in 1999) and NIH reported clinical research spending. Of the $5.3 billion NIH spends on clinical research an estimated $1.9 billion is spent on clinical trials. Other government agencies add at most $1.4 billion dollars (including: Veterans Affairs, Department of Defense, Agency for Healthcare Research and Quality, Centers for Disease Control, Health Resources and Services Administration, and Centers for Medicare and Medicaid Services, and Food and Drug Administration).
A recent New York Times article noted that large insurance companies observed medical cost increases of 10 to 15 percent in Q1 2001 roughly more than double the 5-6 percent increase seen in the past decade.3 Preliminary estimates from Hewitt Associates show that HMOs are requesting premium in
1
Heffler S, Levit K, Smith S, Smith C, Cowan C, Lazenby H, and Freeland M. Health Spending up in 1999; Faster Growth Expected in the Future. Health Affairs 20(2): 193–232. 2001
2
PHRMA. Pharmaceutical Industry Profile 2001. Washington, DC: 2001
3
Milt Freudenheim. “Medical Costs Surge as Hospitals Force Insurers to Raise Payments.” New York Times, 5/25/01.
OCR for page 95
creases averaging 18.3 percent, with some proposed increases reaching as high as 60 percent.
In 1999, Health Affairs reported health insurance premiums increased 6.5% in 1999, faster than the period between 1993 and 1998, which averaged 5.0% annual growth. In that same year, health insurance premiums totaled $401.2 billion spent on health, while $355.3 billion was spent on benefits. The article predicted that premiums would continue to increase 9.3% in 2000, and 10.5% in 2001. During this period, it was believed that premium growth would surpass benefit growth.4
Also noted in the article, hospitals are requesting double-digit rate increase from insurers due to growing labor and utility costs in 2000 and 2001. Insurers are, in turn, passing additional costs from hospitals and other providers to employers in the form of increased premiums averaging 18%.
Spending on prescription drugs rose 16.2% in 2000.5 The fastest-growing categories of drugs in terms of number of prescriptions written were antihistamines (18.4% increase), cholesterol-lowering drugs (18.1%) and antidepressants (11.3%). Factors influencing health care costs include:
Aging population
Diminished competition (mergers of providers and insurers)
Increased medical inflation
Increased prescription drug costs
Strong demand for medical services
Growth in technology including information technology investments
The top disease categories based on cost or utilization indicators include: Cancer, Ischemic heart disease, Congestive Heart Failure, Injury, Complications of Medical and Surgical care, Complications of Pregnancy, Psychiatric Conditions, and Asthma (Table 1).
A survey of 20 licensed HMO plans that published research in the public domain and had a specific infrastructure to support research, had 1996 revenue of $92 million and employed 1,273 staff.6 The selected plans covered more than 29 million members. Research conducted by these entities included health services, epidemiology, health economics, and clinical trials. The plan or parent organization and NIH were the largest source of funds (24% and 22%, respectively).
4
Heffler, et al.
5
Express Scripts. Express Scripts 2000 drug trend report. St. Louis. MO: June, 2001
6
Neslon AF, Quiter ES, Solberg LI. The state of Research within Managed Care Plans 1997 Survey. Health Affairs 17(1): 128–138.
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TABLE 1 Ranking of Top 16 Principal Diagnosis Disease Cohorts*
Condition
Ranking of Total allowed dollars
Ranking of Total allowed dollars per patient per year
Ranking of Admits per patient per year
Ranking of ER visits per patient per year
Cancer
1
2
10
16
Ischemic Heart Disease
24
4
1
2
Other Heart Disease
35
5
1
1
Injury
4
13
15
1
Congestive Heart Failure
5
1
1
8
Diabetes
6
10
9
6
Congestive Obstructive Pulmonary Disease
7
9
7
7
Complications of Medical and Surgical Care
8
3
3
5
Arthropathies
9
14
13
14
Dorsopathies
10
12
14
9
Psychiatric conditions
11
11
12
4
Disease of Liver, Pancreas
12
8
8
10
Disorder of Female Genital Organs
13
16
16
15
Cerebrovascular Disease
14
6
6
13
Complication of Pregnancy
15
7
2
3
Asthma
16
15
11
2
*Data from a large Commercial and Medicare+Choice HMO population in 2000 in the southeastern United States. Members may appear in more than one category.
Representative terms from entire chapter:
health insurance
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