Health Care Costs Driven by Hospital Stays

June 20, 2002 ( - Health care consumers had to shell out 8.7% more in 2001 over the year before, driven by skyrocketing prices for hospital care and strong health care demand.

That was the bottom line of Congressional testimony given by Paul Ginsburg, president of the Center for Studying Health System Change, a health research group.

Appearing before the House Education and Workforce Subcommittee on Employer-Employee Relations, Ginsburg said the rising hospital tab accounted for nearly half of the overall health cost hike.

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Some 38% of the stepped up hospital expenditures were driven by higher prices for care while the rest was a simple matter of a dramatic increase of in demand for hospital service.

“Important drivers of health care costs at this time include advances in technology, the lagging impact of increases in per-capita income, the retreat from tightly managed care, provider consolidation, and shortages of nurses and other skilled personnel,” Ginsburg said. “Surprisingly, the aging of the population is a relatively small driver of cost trends.”

Higher Income Means More Health Spending

Ginsburg testified that while medical technology advances are far and away the most important cost driver over time, changes in people’s incomes affect cost trends in the nearer term, but with a substantial lag. When incomes rise, people tend to spend disproportionately more on medical care.

“The rapid growth in people’s income during the late 1990s is likely a major factor in today’s high health care cost growth,” Ginsburg said. “Rapidly rising health care costs are the hangover from the party now that the economy is sluggish.”

While prescription drug spending continued to grow at the largest annual rate, in both 2000 and 2001, hospital spending replaced prescription drugs as the most important driver of overall cost growth, because a much higher share of health spending is for hospital care, he said.

Health insurance premiums also are rising more rapidly this year, Ginsburg reported.

While the “most reliable surveys” of 2002 average premium increases have not yet been released, the increase is likely to be about 13%, up from an 11% increase in 2001.

Go online to read a copy of Ginsburg’s testimony .