2 What follows is an assessment of the health cost pressures facing many Americans, but with a focus on elderly Americans a group with higher health care costs and less growth in their income. This assessment could equally be applied to any other group whose income fails to match inflation and whose health is poorer. For those elderly relying primarily on Social Security, their income grows at about the rate of regular inflation. Those elderly who rely on pensions for all or part of their income are in no better position. For their pensions, they generally get no inflation adjustments or only get inflation adjustments equal to or less than regular inflation. The problem arises from the fact that health care costs generally rise much faster than other costs of living and than cost-of-living-adjustments for elderly income. When the House Select Committee on Aging conducted its study in 1989 of elderly health care costs, the results documented the rising impact of health care costs on America's elderly. Over the late 1970s through the late 1980s, health care costs rose from 12.3 percent of income in 1977 to 18.2 percent of income in 1988. Preliminary projections are that this percentage will rise to over 20 percent in the early 1990s with or without the Medicare Catastrophic Coverage Act. 3 RAPIDLY RISING HEALTH CARE COSTS Rapidly rising health care costs have been a fact of life for this country for the past two decades. In spite of a host of private and public sector efforts to hold down the rate of increase, health care costs continue to rise at very high rates. Further, there is is little evidence that the trend is changing significantly. Much has been written in recent years about the public sector's efforts to constrain costs. Most of the attention has focused on Medicare, the most visible of federal health care programs. Medicaid went through substantial cost containment in the early 1980s and has since received less attention as it has been overshadowed by Medicare. Employers and labor unions went about the task of reining in their health care costs, only to find that for all their efforts, relatively little was accomplished. Health care costs continue to rise much faster than almost any other sector of the economy and show no substantial sign of slowing their rate of increase. CONSUMER PRICE INDICES. One useful indicator of the upward spiral of health care costs is the consumer price index. As part of that index, the Bureau of Labor Statistics lists a number of health care price indices which can be compared to prices in other sectors of the economy. For purposes of this discussion, the focus will be on the trends since 1983. However, the trends for the 1983 through 1989 period do not look appreciably different than the trends for earlier times. The Consumer Price Index for Urban Wage Earners, the index used in calculating Social Security cost-of-livingadjustments, has grown from an index level of 99.8 in 1983 to a level of 122.6 in 1989 -- about a 23 percent increase in six years. Over those same six years, food prices rose just a slight bit faster (from a CPI-W level of 99.4 to 124.8) -about a 25 percent increase. Health and long term care prices rose at a substantially higher rate. (See Figure 1.1 and Table 1.1) FIGURE 1.1 COMPARISON OF TRENDS IN THE OVERALL CONSUMER PRICE INDEX (URBAN WAGE Medical And Drug Price Indices Compared The overall CPI-W index is used to help determine the Social Security COLA on a year-to-year basis. 5 TABLE 1.1 CONSUMER PRICE INDEX (URBAN WAGE EARNERS) FOR 1983 THROUGH 1989. (Note: CPI-W for 1982-84 equals 100 and is the base for the index.) - From 1983 through 1989, the Consumer Price Index (CPI-W) for medical care rose from an index level of 100.5 to 149.6 a six year increase of 49 percent. This is over twice the increase as of overall prices or food prices. Physician care, a high proportion of what makes up the medical care index, rose at just a slightly higher rate than the medical care index. The index for hospital room prices went up slightly faster (about 55 percent over the six years) than the physician index. Among the fastest growing areas of health care prices is prescription drugs. Over the six year period from 1983 through 1989, that index rose from 100.1 to 165.0 nearly a 65 percent increase. As compared to overall consumer prices or food prices, prescription drug prices have grown over two and one-half times faster. There is also no indication that these trends are likely to change. Focusing on changes over the last year, the overall Consumer Price Index (CPI-W) rose 4.8 percent. At the same time, physician care prices rose 7.5 percent; prescription drug prices rose 8.7 percent; and hospital room prices rose the most, a 10.0 percent increase from 1988 to 1989. Overall, the composite medical care price index rose 7.6 percent I over one and one-half times faster than the Consumer Price Index (CPI-W). - PHYSICIAN FEES. Recent data released by the American Medical Association ("Socioeconomic Characteristics of Medical Practice 1989", AMA, 1990) provides further detail to increases in physician fees. Their numbers are slightly lower but fairly similar to the figures provided by the Bureau of Labor Statistics. The AMA's estimates show that the average physician fee for an office visit with an established patient rose from a 1982 level of $23.49 to a 1988 level of $33.91 an average annual increase of 6.3 percent. MEDICARE - DEDUCTIBLES. Another view of rising health care costs for the elderly is provided by looking at trends in Medicare premiums, coinsurance and deductibles. With respect to coinsurance, Medicare requires beneficiaries to pay 20 percent of the "reasonable charges or costs." That means that this coinsurance rises as fast as does Medicare Part B costs, of which one indicator in recent years has been the Medicare Part B premium. In the case of hospital and skilled nursing facility coinsurance, both are tied to changes in the Medicare Part A hospital deductible. As is described in this section, the Part B premium and the Part A hospital deductible have both grown at very rapid rates. In the case of the Medicare Part B deductible, the increases since the program's inception have been modest, growing from an initial level of $50 (1966-1972) to $60 (1973-1981) to $75 currently (1982-present). In the case of the Medicare Part B premium and the Medicare Part A hospital deductible, the story is one of large increases since the program began in 1966. (See Figure 1.2) |