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Health care costs continuing steep climb to crisis

No matter where the blame is placed, it is a fact that Mississippi and the rest of the nation face a crisis situation when it comes to health care.

PricewaterhouseCoopers (PwC) addressed the nation’s health care crisis in its April 2002 report prepared for the American Association of Health Plans in Washington, D.C. The report, titled “The Factors Fueling Rising Healthcare Costs,” examines why so much is being spent on health care today.

According to PwC, beyond general inflation, nearly half of the cost increase in health care is a result of increased consumer demand, drugs, medical devices and other medical advances. The other half of the increase is driven largely by litigation, mandates and rising provider expenses. Current spending may be offset by future savings in eliminating or reducing other medical services for some drivers such as drugs and medical advances.

During much of the 1990s, health care costs rose more slowly than had been the case during the ‘80s. A contributing factor in restraining the growth of health care costs, according to the PwC report, were health plans. The managed care industry emerged as a dominant leader in the health care system following a period in the late ‘80s and early ‘90s in which rising health care costs were seemingly out of control.

Costs were held in check during this time — quite a feat considering the strength of the economy. The combination of rapidly growing incomes and labor shortages, which should have caused an upward pressure on health care prices due to increased demand and ability to pay, did not. Instead, premium increases fell during the early- to mid-1990s and were at a record low from 1994 until 1998. In 2000, the share of GDP devoted to health care was 13.2%, up from 8.8% in 1980 and, based on official government forecasts, that share would continue to rise and reach 16% of GDP in the next five years.

Rising health care costs mean that consumers are paying more for health care now than ever before, but the costs have an impact on other sectors as well. Increasingly, employers are facing hard choices as they are forced to pass costs along to their employees, reduce salaries or reduce benefits. Also, these higher costs of health care also make for a significant upward pressure on other goods and services, and government programs such as Medicare and Medicaid are seeing their funding crises worsen.

PwC identifies the top factors driving rising costs in health care premiums to be general inflation at 18%; drugs, medical devices and medical advances at 22%; rising provider expenses at 18%; government mandates and regulation at 15%; and increased consumer demand at 15%. Litigation and risk management was calculated by PwC to be about 7% of the total increase and other categories, which include fraud and abuse, to be 5% of the total increase.

Dr. Ed Thompson, state health officer for the Mississippi State Department of Health, said the underlying reason that health care is so expensive is that it is getting better.

“We can do things now we could only dream of a decade ago,” Thompson said.

Prescription drugs are also driving the costs of health care up, but the legal side of health care is to blame for the bulk of rising health care costs, he said.

“You can’t contemplate in Mississippi without hiring a lawyer because you have to negotiate the legal ramifications,” Thompson said. “And unlike the factor of improved quality, the legal costs of medicine don’t add any value. It’s simply money wasted.”

Regardless of the cause, the results are the same — medical and malpractice insurance premiums go up, doctors leave the state and patients die.

“We’ve got to get people talking and find solutions,” said J. Phillip Macon, president of J.P. Macon & Company in Jackson. “Finger pointing is not going to take care of it.”

Until recently, Mississippi and the rest of the nation had a vibrant health care community. The problem, Macon said, is perceptual reality.

“Many physicians don’t think they can sustain themselves,” Macon said. “They’re retiring early or leaving the state.”

In Tupelo alone, no neurosurgeons exist except for part-timers.

“What’s going to happen when Paw-Paw has a stroke?” Macon asked.

Neurosurgery is not the only sector in health care that has been affected. In the Delta, only 15 obstetricians remain, down from 36 last year.

“There were 45 companies last year at this time selling malpractice insurance in the state of Mississippi,” Macon said. “There are only five left. Our health care system is going to step back 30 years easy in many rural areas in Mississippi. You tell me — is that good or bad?”

Susan Harrison, who is in charge of employee benefits for The William Morris Group, PA , an employee benefits consulting group in Jackson, said all businesses that provide medical or health care benefits to their employees are seeing their costs escalate as a result of the rising price of health care. Last year The William Morris Group delivered premium increases from 13% to 60% to its clients.

“The way I’m seeing businesses deal with it is in the form of making plan changes,” Harrison said. “They’re shifting costs — for instance, increasing the co-pays for prescription drug card arrangements and increasing co-pays for doctor’s office visits, increasing deductibles, increasing co-insurance amounts or out of pocket amounts.”

To lessen the burden on many of the businesses served by The William Morris Group, Harrison is arranging defined contribution plans for some of her clients. The plans, which are quite common for large groups in other parts of the country, allot a certain amount of money for a particular medical plan — usually the base plan. If an employee wants the Cadillac of medical plans, that employee must pay the difference between the base and the larger plan. Harrison predicts defined contribution plans will become more common in the future.

Like many others, Brad Robertson, vice president of the life and health department at The Peoples Insurance Agency Inc. in Tupelo, blames much of the problem on the state’s legal climate.

“The medical malpractice carriers in Mississippi are leaving the state and the costs for medical malpractice insurance are doubling and tripling in some cases,” Robertson said. “Physicians have to recover their costs from somewhere.”

Many businesses Robertson sells insurance to are already considering passing at least a portion of their insurance costs to employees.

“It’s not like other goods they buy for their business,” Robertson said. “This is probably a minimum of a 15% to 20% increase. I think some of these employers are at a point where they’re saying this is all they can do for their employees.”

If something is not done soon to lessen health care costs, Robertson said he fears what could happen in the future, especially to small businesses with two to 10 employees. If a business discontinues providing health care coverage, employees may get on a spouse’s insurance, which leads to a participation issue and, in turn, to people becoming uninsured.

“I haven’t run into that yet but I can see that happening with the smaller businesses,” Robertson said.

Dr. Dennis Rowlen has been a practicing pediatrician with the Rankin Children’s Group in Brandon for 17 years. He said the increasing costs of health care are an issue for everyone.

“We deal with it day in and day out,” Rowlen said. However, he added, “It probably doesn’t hit us as hard as other people like OB-GYN’s, general surgeons and neurosurgeons.” Rowlen said the malpractice insurance premiums some doctors pay are a
s high a
s his annual salary.

Rowlen said doctors are going to have to make a concerted effort to hold costs at their own practices down by looking at their own purchasing. But he said help also has to come from decision makers.

“If relief

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