Health care inflation was 8.2% in 2004 for privately insured Americans. This was 2.6% higher than overall economic growth, and almost twice as high as the general rate of medical inflation (4.4% in February) . The largest driver of health inflation was outpatient hospital, which increased 11.2%, while drug cost inflation moderated somewhat, coming in at 7.2% for the year.

The Center for the Study of Health System Change authored the report that is the source of these data, noting:

"Trends in four of the five spending categories—inpatient and outpatient hospital care, physician services, and other services—stabilized in 2004, while prescription drug spending grew at a slower rate for the fifth year in a row.

Meanwhile, the slowdown in employer-sponsored health insurance premium growth continued, with 2005 average premium increases estimated to range between 8 percent and 10 percent, down from 12 percent in 2004. The continued slowdown in premium trend likely reflects the lagged relationship between underlying health spending trends and premium trends.

In recent years employers have increased patient cost sharing, through higher deductibles, copayments and coinsurance, as a way to cope with double-digit premium increases. This trend appears to have continued in 2005 for the fourth year in a row, although to a lesser degree than in recent years."

The good news is the rate of inflation has leveled off. The bad news is we are getting older, the number of uninsured is growing, health insurance is increasingly unaffordable for employers or employees, the use of technology in medicine is increasing, and we have no solutions on the horizon.

I would also highlight the disparity between the overall rate of medical inflation and the privately insured rate. The disparity, a full 3.8%, reflects the fact that the inflation rate for privately insured individuals is significantly higher than that for governmental programs and non-insured individuals.

Cost shifting, anyone?

What does this mean for you?

The rate of inflation and attendant problems make this an unsustainable situation. Beware of cost shifting and "care shifting" as consumers and providers alike seek to shift the burden of medical expenses to payers with deep pockets.