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Health Care Costs Rose by Double Digits for Third Straight Year in '03

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WASHINGTON - Getting sick continues to become more expensive.

Health care costs paid by private-sector employers and their workers soared 13.9 percent in 2003 - or more than six times the rate of inflation, according to a report Tuesday by the Kaiser Family Foundation and the Health Research & Educational Trust.

It was the third consecutive year of double-digit increases. And experts said it means higher out-of-pocket expenses for workers as businesses shift some of the costs by imposing higher premiums, deductibles and co-payments.

Drew Altman, president and chief executive officer at Kaiser, said costs are rapidly rising because of continuing advances in popular but expensive high-technology diagnostic tests and treatments - including prescription drugs.

"What we are really talking about is medical technology," Altman said. "And that is why this is so difficult to solve. At the end of the day, the villain is us, the American people, because we want the latest and best in medical technology."

Other findings in the report included:

-Small companies, which lack bargaining clout with insurance companies, saw their health care costs rise 15.5 percent. That compared with 13.2 percent for large companies with 200 or more workers.

-The annual average cost of family coverage reached a new high of $9,068 - or enough to purchase an economy-size automobile; employers picked up $6,656 of the expense. For single coverage, the average rose to $3,383.

-The average monthly worker contribution for family coverage increased to $201, up from $135 in 2000. Similarly, the monthly single worker contribution rose to $42, up from $28 in 2000.

-The percentage of companies offering coverage is slipping. In 2000, 69 percent of companies offered health coverage, compared with 66 percent today. Much of the decline is among small companies, 71 percent of which offered benefits three years ago, compared with 65 percent today.

The three-year spike in health care costs comes at a time when most employers can least afford it - a period marked by a recession and a slow recovery. And it also comes at the outset of the 2004 presidential campaign, promising to focus candidates on both costs and the rising level of uninsured Americans.

"I do not see how it could be ignored," said Paul Fronstin, a health care analyst at the Washington-based Employee Benefit Research Institute.

Indeed, public opinion polls show health care ranks among the top concerns of voters. According to a Harris poll conducted just last month, health care came in third behind only the economy and war in a ranking of issues that most concern respondents.

And in Tuesday's report, workers said soaring costs topped their health care concerns, rising above access to prescription drugs and care, the availability of insurance or remaining stuck in a job to maintain health coverage.

The 2003 cost surge is the largest annual increase since 1990. And it comes on top of a continuing series of increases that began in 1996, following seven years of slower health cost inflation as businesses reaped savings with the implementation of the first managed care plans.

Experts said rising health costs are likely to remain a concern indefinitely because there is little chance the causes will abate any time soon.

Analysts predicted technology would continue to drive improvements in care. And they noted the 76-million baby boom generation is getting older, promising to drive demand for treatments and increasingly popular prescription drugs.

Some analysts attributed a portion of the increase to higher insurance premiums.

Larry Akey, a spokesman for the Health Insurance Association of America, said insurance company profit margins are among the lowest in the industry. But he acknowledged that companies are now more focused on improving margins than expanding market share as they did during the 1990s.

While some small companies have eliminated coverage, analysts did not see them abandoning the benefit on a wide scale because medical coverage continues to be highly valued by workers and employers. Only 1 percent of large companies and 6 percent of small ones said they would consider dropping health care coverage.

"They do not plan on dropping benefits. It is a last resort for most of them," said Kate Sullivan, director of health care policy at the U.S. Chamber of Commerce.

Gerald Shea, a government affairs expert at the AFL-CIO, said the value of health care has emerged as a key issue in recent labor negotiations. He said beneficiaries who are most at risk for losing coverage are low-wage workers and retirees.

Analysts noted that companies are increasingly cutting or eliminating benefits for retirees - a troubling trend for the baby boom generation, which is expected to begin retiring in 2011.

"If it is not guaranteed in granite, you are not going to get it. There are lots of places where this is disappearing," Shea said.

The annual Employer Health Benefits report is widely used to measure the medical costs faced by the nation's employer-based health finance system. It is the result of 1,856 surveys conducted between January and May of this year among companies ranging from three to hundreds of thousands of workers.

Experts said employers have few easy options for dealing with rising costs.

So far, private-sector employers are asking workers to pay more for their coverage. In recent years, workers have faced higher premiums, deductibles and co-payments.

More recently, employers began offering workers so-called consumer-driven health care coverage. The new plans seek to cut costs with high deductibles or by providing beneficiaries with a fixed annual amount before catastrophic coverage kicks in.

Fronstin, the health care analyst, said employers have made only modest inroads in cutting costs. To have a real impact, he said, employers would have to take far more painful and controversial steps to deny care.

And that would mean cutting costly care to the chronically ill with conditions such as diabetes, cancer and heart disease - or the 20 percent of beneficiaries who account for about 80 percent of health care expenses.

"It will really be tough to get these people to use less care," Fronstin said. "And when you have more new technology coming on board, it is harder to say, `No.'"


(c) 2003, The Dallas Morning News. Distributed by Knight Ridder/Tribune News Service.

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