Hospital Expenditures Largest Culprit in Rising Health Care Costs

From 1990 to 1994, researchers at the University of California at Irvine, Graduate School of Management examined how and why employer health care costs increased over the six-year period from 1984 to 1990, despite efforts by employers to contain them.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO).

Key Findings

  • Seventy-five percent of the increase in employer health care costs for the study period were due to hospital ancillary expenditures, hospital outpatient department expenditures, and components of other expenditures such as prescription drugs.

  • A larger employee population base, use of utilization review and cost containment programs, and high HMO penetration in a local market area resulted in lower premium growth rates.

  • While high employee turnover resulted in increased premium growth rates, many of the employer groups that did not renew their policies experienced large increases in benefit payment and insurance premiums.

  • Higher HMO penetration in a local market area correlated with lower growth in indemnity insurance premiums for the area.