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The start of a new year brings projections and predictions
for what is to come. In this month's piece we review
and highlight some of the dominant themes and trends
in health care and managed care for the year 2002. The
fight against terrorism and the sagging U.S. economy
will be primary factors responsible for shaping and
altering the health care landscape in 2002.
Health Care Spending
Escalating health care costs will remain a major concern.
National health care spending is projected to reach
more than $1.5 trillion in 2002 or $5,805 per capita,
an increase of 8% from the previous year. The health
care industry accounted for one in every seven dollars
spent in the United States in 2000-13.1% of the Gross
Domestic Product (GDP)-and the percentage is expected
to grow to 15.9% by 2010. Increases in overall medical
costs are projected to be greater in 2002 than 2001
for active employees (14% increase in 2002 vs. 12% in
2001) and Medicare retirees (15% increase in 2002 vs.
13% in 2001) (Watson Wyatt WorldWide and Towers Perrin).
National pharmaceutical costs are expected to increase
but stabilize, a 19% increase in 2001 vs. a 17% increase
in 2002; changes in benefit plans requiring higher patient
copayments are expected to slightly dampen demand (Center
for Medicare and Medicaid Services). Hospital costs,
particularly for outpatient services, are expected to
be a principal cost driver of health care inflation
in 2002.
Rising health care costs within a larger economy experiencing
a downturn have compounded the fiscal pressures for
payers, insurers, providers, and consumers. Cost-containment
strategies have become paramount for all the parties
in the health care system, but efforts in this area
must take into account the growing concerns over quality
and accessibility. The emphasis on consumer demand and
the loosening of utilization controls by managed care
organizations will make implementation of cost-containment
strategies difficult.
In 2002, employers will continue to absorb a large
percentage of health care cost increases. In response,
employers are choosing to pass cost increases along
to employees, rather than reducing benefits (an exception
being pharmacy benefits). Employers are increasing office
visit copayments and deductibles for physician visits
and hospital admissions. Employers and health plans
are introducing multiple-tiered pharmacy benefits and
tiered provider networks, in which members pay more
higher out-of-pocket costs for certain benefits. Despite
attention to defined contribution plans, employers generally
have been reluctant to release control of health care
decisions to their employees (for more on defined contribution,
see THCI's January 2001 topic-of-the-month).
Managed Care
In 2002, escalating medical costs, increased provider
clout, and pressure from consumers and employers for
more choice and flexibility will challenge how managed
care organizations (MCOs) operate. MCOs are offering
less restrictive plans and revamping existing plans
to relax restrictive features. They are relaxing preauthorization
requirements for certain services, streamlining or abolishing
the referral process, and offering HMO plans that do
not require a gatekeeper.
Preferred provider organizations (PPOs) continue to
be the most popular form of managed care for consumers
and employers alike. In 2001, enrollment in PPOs stood
at 46% of all covered employees, compared to just 33%
in health maintenance organizations (HMOs) (William
H. Mercer, Inc.). While HMOs typically remain the least
expensive plan available, the cost increases of HMO
plans were nearly identical to PPOs in 2001.
According to Interstudy, HMO enrollment continued to
slide to 79.5 million members, from its peak of 81 million
in 1999. The consolidation trend also continued as there
were 541 operating plans as of Jan. 2001, down from
568 plans one year earlier. HMOs have retooled their
business strategies by trying to repair provider relations,
offering more attractive plans to employers and customers,
withdrawing from unprofitable markets, increasing the
number of self-funding plans, and passing along premium
increases to employers.
The Delivery System
In 2002, providers will again face a turbulent year
of trying to balance quality and cost concerns. Vertically-integrated
delivery systems continue to split apart as promised
cost savings and efficiencies have not been realized.
Provider networks have responded by refocusing operations
on delivery of patient care and leveraging their strong
marketplace position to restructure contracts with insurers
and health plans to secure higher payments.
Quality issues remain at the forefront of care concerns
for providers. Upgrading clinical information systems,
implementing clinical practice guidelines, and initiating
disease management programs are some of the most prevalent
approaches that providers are counting on to achieve
cost-effective, high-quality outcomes. Still, providers
face a myriad of issues in 2002 including: bioterrorism
preparedness, the rising cost of prescription drugs,
raising capital for expansion and continued improvement,
continued nursing shortages, HIPAA compliance, and declining
Medicare payments.
Consumers and Patients
The marketplace is changing from the past decade. In
the 1990s, patients demanded access to the latest innovations
in health care, while employers absorbed most of the
cost increases. As the economy entered a recession late
last year and medical costs continue to climb, employers
have begun passing along costs more directly to their
employees and limiting health plan options. Increasingly,
patients will have to choose the level of care they
desire based upon their ability to pay.
Access to health information through the Internet and
patient education has enabled patients to participate
more actively in their treatment decisions. Still, a
lack of quality information, especially in regards to
the cost and quality of provider services, severely
hampers the ability of patients to be well-informed
consumers. Advocacy groups are calling for the release
of more provider information, and some health plans
and private groups are indeed making more information
available over the Internet. Still, it remains to be
seen how much will change in the short term during 2002.
Legislative Action
Emphasis on the September 11 terrorist attacks, mid-term
congressional elections, and narrow majorities in both
the House of Representatives and the Senate make major
health care policy changes in 2002 unlikely. Issues
such as the Patients' Bill of Rights, a prescription
drug benefit for Medicare recipients, provider relief
on Medicare payments, and rising numbers of uninsured
are carried over from 2001.
President Bush's proposed budget outlined his health
care priorities for FY 2003: a massive increase for
bioterrorism preparedness, expansion of tax credits
for individuals to buy private insurance, increased
Medicaid funding for the State Children's Health Insurance
Program (SCHIP) program, and targeted improvements to
the Medicare program including some form of a subsidized
prescription drug benefit.
President Bush's priorities and the projected budget
deficit make it unlikely in 2002 that legislation addressing
a large expansion of coverage for the uninsured, the
Patients' Bills of Rights, large-scale provider relief
on Medicare payments, and a full-scale Medicare prescription
benefit will be enacted. Instead, lawmakers are likely
to amend current Medicare payment growth caps to enact
slight relief for providers, and address the rising
number of uninsured through piecemeal means including
expansion of coverage under Medicaid programs and COBRA
and tax credits.
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