NCPA - National Center for Policy Analysis

Hospitals, Insurers Pass On Cost Increases

May 25, 2001

Many hospitals are winning sharply higher payments from insurers -- and the efforts by insurance companies to pass those costs along to employers and consumers are contributing to the most rapid surge in medical costs in years.

  • Medical costs increased 10 percent to 15 percent for the first quarter for the biggest insurance companies -- after averaging 5 to 6 percent for a decade.
  • Experts expect them to keep rising.
  • Health maintenance organizations are asking those employers that are their best customers for increases in premiums averaging 18.3 percent, according to a preliminary estimate from Hewitt Associates -- with proposed increases as high as 60 percent.
  • Often, those hospitals which have received no increase in payments for years are using the new power they have gained through mergers and acquisitions to demand higher payments to cope with rising labor costs for nurses, pharmacists and other workers in short supply.

At the same time, many insurers are dropping restraints on care that infuriated consumers and doctors, but kept their costs in check. So insurance companies are asking for higher payments, just as corporate profits are sliding.

Many executives say they are fed up with managed care -- which was supposed to keep a lid on costs.

Source: Milt Freudenheim, "Medical Costs Surge as Hospitals Force Insurers to Raise Payments," New York Times, May 25, 2001.


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