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Steep Rise Projected for Health Spending
By Lisa Girion and Ricardo Alonso-Zaldivar
Los Angeles Times February 22, 2006

WASHINGTON -- Healthcare will account for 1 in 5 dollars spent in the United States by 2015, and health savings accounts are unlikely to help much in containing costs, government analysts said Tuesday.

The U.S. healthcare bill is expected to reach $4 trillion by that year, according to an annual forecast by the National Health Statistics Group at the federal Centers for Medicare and Medicaid Services.

At that point, health spending will consume 20% of the country's gross domestic product, up from 16% today, with the government paying about half of the tab, the researchers predicted.

Although the new Medicare drug benefit may help tame the growth of prescription costs, the government economists and actuaries who compiled the forecast said they weren't expecting much from health savings accounts, which the Bush administration has touted as a key means to control spending.

"The net impact on cost containment is likely to be far smaller than that seen from the massive shift toward managed care during the mid-1990s," they wrote in the online edition of the Journal of Health Affairs, which published the forecast.

The new Medicare drug benefit, on the other hand, appears to be curbing the escalation of prescription costs even though more people are getting needed medications. That is because the insurers offering Medicare drug coverage negotiated better-than-anticipated discounts with pharmaceutical manufacturers, the analysts said.

The forecast projects a 7.2% average annual increase in healthcare costs over the next decade -- well above the 5.1% growth rate predicted for the overall economy.

John Poisal, deputy director of the National Health Statistics Group, said the continued escalation in costs was fueled by consumer demand for an ever-increasing array of new medical techniques and capabilities.

"It's consumption and investment," Poisal said. "But primarily it's about consumption."

President Bush has promoted health savings accounts as an antidote to unchecked spending. The accounts allow families to save money tax-free to pay for health expenses that are not covered by special high- deductible insurance plans.

The accounts are part of a trend toward so-called consumer-driven healthcare. The idea is that consumers will spend less if they bear more of the expense.

About 3 million Americans -- less than 2% of those in private health plans -- are enrolled in plans that qualify for health savings accounts. It is too early to tell whether the accounts are working as billed but they are unlikely to attract enough consumers to make much difference over the next decade, the government analysts said.

"Given the small number of people affected, we don't expect the effect to be huge," said Sheila Smith, an economist and coauthor of the forecast.

The analysts' cautious outlook for health savings accounts echoes statements of some economists and public policy experts who doubt that consumer-driven healthcare can deliver on its promise.

"It's hard to see where we will see sustained savings," said Paul Fronstin, an economist at the Employee Benefit Research Institute, a Washington think tank.

Even if health savings accounts were to grab a large share of the market, they would be unlikely to achieve the cost reductions that managed-care plans such as health maintenance organizations and preferred provider organizations squeezed from physicians and hospitals in the 1990s, experts said, because individual consumers lack the same purchasing power.

"The people who think [health savings accounts] are the magic bullet need to think this through," said Bob Laszewski, an insurance industry consultant. "It's almost a no-brainer to say they'll have nothing close to the leverage managed care had." v Even proponents of consumer-driven healthcare agreed with the forecast's outlook for health savings accounts.

"I wouldn't argue with their assessment," said Devon Herrick, a senior fellow at the National Center for Policy Analysis, a Dallas-based think tank and one of the earliest promoters of consumer-driven healthcare. He said federal rules had hamstrung insurance companies' ability to offer the accounts with features that would make them more popular.

CP Copyright 2006 Los Angeles Times

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