Overall health spending growth is well below this year's premium increases, according to a new study released Thursday.
Altarum Institute's Center for Sustainable Health Spending published the study, which compared the nation's health expenditure trends versus Kaiser Family Foundation's latest health benefits survey that showed premiums for employer-sponsored family health coverage increased 9 percent in 2011.
That's a hike above overall health spending in the past year, which increased 5 percent during the 12-month period ending in August.
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"Two facts really jump out of this month's analysis," said center director, Dr. Charles Roehrig. "First, the widely-publicized 9 percent rise in family health insurance premiums is not indicative of what has been happening with overall health spending. Spending has been growing at an annual rate of about 5 percent in 2011 and our data show that health care prices have actually trailed economy-wide inflation in recent months. Second, the health sector continues to be very strong in terms of job creation, a critical fact in an economy that is otherwise not producing jobs. This month's analysis shows an additional 44,000 jobs created by the health sector—a nine year high."
Altarum says health expenditures have been growing at moderate rates (between 3.9 and 5.4 percent) versus premiums, for the past two years.
Possible explanations for the discrepancy include:
- Low Medicare and Medicaid rate increases. "Perhaps spending by the privately insured is growing more rapidly than overall health spending due to low Medicare and Medicaid rate increases," the report states.
- Lower investment earnings. "Insurers have significant risk-based capital requirements. If investment income from the resulting reserves has been low in the weak economy, insurers may have increased the premium markup to compensate."
But, states Altarum, "these possibilities cannot explain all of the difference between premium increases and overall health spending growth, because insurers have been reporting a jump in profits this year." The following additional reasons have been suggested to explain the rising profits:
- Anticipated cost increases. "It has been hypothesized that, when insurers set their rates for 2011, they expected costs to accelerate with overall economic growth that subsequently failed to materialize."
- Raising premiums while still possible. "Another argument is that insurers simply took what they believed the market would bear, perhaps in expectation of tighter regulation under the Affordable Care Act."
Hospital spending grew most rapidly at 6.4 percent, and home health care showed the slowest growth at 2.4 percent.
At 84 percent, money spent on personal health care goods and services accounts for the highest portion of total health spending.
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