Medical Costs Rising Rapidly

Medical costs are on the rise-driven by higher hospital costs that are being passed along to employers and consumers by insurance companies. Medical costs increased 10% to 15% in the first quarter of 2001 for the biggest insurance companies, after averaging a more modest 5% to 6% for the past 10 years. In turn, health maintenance organizations (HMOs) are passing these increases along to employers by raising premiums an average of 18.3%-with some HMOs seeking increases as high as 60%.

One of the reasons for the increased costs is that hospitals have become more powerful, thanks to a rash of mergers and acquisitions. This increased market power permits hospitals to demand major increases in payments from insurance companies. In some instances, hospitals are refusing to accept patients covered by insurance companies that have not paid up. Hospitals are also seeking increases to make-up for the lack of payment increases in recent years. In addition, rising labor costs-including the pressures of having to contend with the current nursing shortage-are a contributing factor, as well as ever-increasing drug costs.

From the May 25, 2001 New York Times article, "Medical Costs Surge as Hospitals Force Insurers to Raise Payments," by Milt Fruedenheim