Wednesday, January 17, 2007

Cost trend moderated a bit in 2005

Healthcare spending [in 2005] grew 6.9% to about $1.99 trillion from about $1.86 trillion in 2004, a slower pace than the 7.9% increase a year earlier, the report by the National Health Statistics Group found.” (Free subscription required)

2005 was actually the third consecutive year in which health care spending declined. That may be a slender ray of good news for group benefit plan sponsors of any size - if this translates into smaller premium increases for 2007.

The $1.99 trillion consisted of $342 bn for Medicare; $300.9 bn for Medicaid consisting of $179 bn for medical services plus another $121.9 bn for nursing home and related services; and $1,347.1 bn for private, non-elderly care. Using estimated populations of 257 million under age 65 and 43 million age 65 & over, gives approximate annual per-person costs of $6,400 for the under-65 population (includes Medicaid) and $7,950 for the over-65’s.

Of course, for insurance to cover these populations, the premiums must cover these medical costs plus adminstrative costs – regardless whether the insurance is arranged by the government or by a private insurance company. For example, the average monthly premium for persons over age 65 must be at least $7,950 per year ($663 per month per person), plus something for admin. Clearly, regardless of who arranges the insurance – government or private company – the premiums have to be high because the medical costs are high. There can be no relief unless medical costs come down.

BTW, just how big a number is two trillion? Well, it’s $228 million an hour, for 12 months. Or, look at it this way. If you earned $100,000 an HOUR, 24 hours a day, 365 days a year, and went on payroll the day Julius Caesar was assassinated, you would have earned about 1.8 trillion dollars as of today. You won’t make it to 2 trillion for another 220 years. Nice work- if you can get it.


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