"A Starting Point for Health Care Cost Increases" by Nonnie Burns

One of the major issues that all of the players in the roll out of the Massachusetts health care reform need to address is the rising cost of health care. I thought that the Division of Insurance could further this conversation by providing a base line of what the cost increases had been before reform. To assist in that discussion, the Division engaged a consulting actuarial firm to perform two studies, one to look at the trends in health claims and the other to look at the other to look at how much our HMOs spent on administration per premium dollar when compared to HMOs in other states..

The Division has just issued those two studies (“Trends in Health Claims for Fully-Insured, Health Maintenance Organization in Massachusetts, 2002-2006” and “Analysis of Administrative Expenses for Health Insurance Companies in Massachusetts”). I urge everyone interested in these topics to review the entire reports. On the assumption that not everyone will have time to do that review, I have summarized below the major findings of the claims report.

Major Findings

· Between 2002 and 2006, the total cost for medical services per insured member per month increased by 55%, from $154 to $239.

· Over the study period, total medical claim costs per insured HMO member increased at an average annual rate of 11.6%.

· The cost of inpatient hospital services per member increased by an average annual rate of 9.2% (which is below the trend in overall medical service costs in this study) between 2002 and 2006. The utilization of inpatient hospital services remained essentially flat over the study period, and hospital inpatient cost increases accounted for the majority of the overall change in cost per member.

· The average cost of outpatient hospital services increased by 15.9% per year during the study period. The average annual trends for radiology and laboratory services provided in an outpatient hospital setting, and the cost per member increased at average annual rates of 18.4% and 19.6%, respectively.

· The cost of physician services increased by an average rate of approximately 10% per year. Part of this increase is due to a movement to higher level, more complex office visits being provided to the covered population.

· During the study period, the cost of pharmacy services and supplies per insured HMO member increased at an average annual rate of 10.4%.

We at the Division of Insurance have not studied why these costs are increasing where they are. We do believe, however, that this information, along with information being gathered through the Health Care Quality and Cost Council and the HealthyMass Compact will further discussions on Massachusetts health care costs. We look forward to participating in those discussions.

Nonnie Burnes, Commissioner
Massachusetts Division of Insurance