Health care profits soar
The New York Times / Seattle P I; Nov. 4, 2002
Health costs are spiraling into another year
of double-digit increases. Patients, employers and government health programs
are feeling the financial pain.
But where is the money going? And why do
health costs continue to rise when in so many other parts of the economy - from
cars to clothes to computers - prices are falling and profit margins are being
The big winners for now include hospitals,
particularly those that have assembled networks that dominate local markets, and
makers of ingenious medical devices like advanced heart pacemakers and the
latest hip and knee replacements that cost more than the earlier versions.
Nurses, in short supply through much of the country, are getting big raises and
better working conditions. ,
And the strongest managed care companies
- even though they long ago lost their power to check health care costs - are
reporting sharply higher profits, as premiums rise faster than underlying
By contrast, the growth of spending on drugs is slowing, after
a decade-long bonanza of profits for drug companies. As health plans require
members to pay a steeper share of drug costs, more consumers are turning to
lower-priced generic versions of blockbuster drugs such as Prozac whose patents
pattern, in other words, is a classic one: The less competition, the higher the
"Anybody that charges money and has close to a monopoly
is ahead of the game," said Dr. Paul Ellwood, head of the Jackson Hole Group of
health policy experts, which drafted an early version of the Clinton health
proposal. "The losers are the
Many health insurers are enjoying robust profits,
passing on their costs - and then some - to employers, dropping money-losing
customers and doing little to compete on price, analysts say.
UnitedHealth Group, one of the largest managed care companies, reported a 44
percent leap in earnings per share for the three months ended Sept. 30, compared
with the comparable period a year ago. Last month, Aetna, a big insurer that
lost money last year, said its third-quarter profit would be twice what Wall
Street had expected.
Employers say that they are fed up with the
increases, but their main response so far has been to shift more costs to
workers in the form of higher deductibles, higher co-pays and a larger share of
Next year, employees will pay an average of 19
percent of total premiums for individual coverage, up from 17 percent in 2001,
according to a survey of large employers released last week by Hewitt
Associates, the benefits consulting firm. For family coverage, employees will
pay 24 percent of premiums, up from 21 percent last year.
are putting up with the substantial increases because they know that coverage is
a big item in recruiting and retaining workers, said Helen Darling, president of
the Washington Business Group on Health, a group of big companies nationwide.
For their part, workers are eager for more, rather than less, health care, as
long as insurance pays most of the bills.
More than half the increase
in health spending is for hospital services. Outpatient costs are now the
fastest-growing health care category, outpacing drugs, according to a study
published last month on the Web site of Health Affairs, a scholarly
Hospital executives say that they are just passing along
their own increased costs notably for medical technology, such as the latest
diagnostic scanners, and higher salaries in a nursing shortage. For instance,
last month 10,200 California nurses at 17 hospitals and 34 medical offices
operated by Kaiser Permanente ratified a contract that includes wage increases
of 26.5 percent over four years.