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The Rising Cost of Health Care

With double-digit increases predicted for the next decade, the cost of health care has started appearing more frequently in the news. What's fueling the cost increases?

  • Prescription drugs. This is the fastest growing health care expense, and it is projected to grow at 20 to 30 percent each year over the next several years. There are many newer, more expensive drugs on the market, and the use of these prescriptions is exploding. In addition, with so much television advertising, many consumers ask their doctors for expensive, brand name drugs when there may actually be a generic drug that works just as well.
  • Cost of developing new technologies and treatments. Over the past decade, scientists have made significant advancements in the treatment of certain diseases. Unfortunately, just like any new product, the cost of developing these new technologies and treatments is extremely high. Plus, unlike other technology, health technology generally doesn't decrease in price over time.
  • Increased demand for health care. More and more people with medical insurance are relying on the health care system as new technologies and treatments become available. This leads to a greater number of claims for payment by insurance companies, the costs of which are passed back to health care consumers.
  • America's aging population. The "baby-boom" generation is entering its peak health-care-using period. In fact, over eighty million Americans will turn 50 in the next 10 years. The cost of providing health care to them will be staggering.
  • Increase in uncompensated care. There are an estimated 44 million Americans who don't have health care insurance, and the cost of providing care to this group is borne indirectly by the insured consumers.
  • New legislation. Proposed government mandates--such as the Patients' Bill of Rights, Medicare reform, and health care tax changes--will continue to drive health care costs up.

All of these increased costs flow through insurance companies and eventually trickle down to employers in the form of higher medical costs. Penn is certainly feeling the effects of this national trend.

How Your Benefits Stack Up:
Penn Benefits Remain Competitive

Exactly how do Penn's benefits stack up against the competition? This year our benefits consulting firm, Hewitt Associates, conducted two studies that show that the benefits we offer to employees are on par with those offered by local and national employers and our peer universities.

Last year, national employers in the study contributed roughly 82% toward the cost of employees' health care benefits, while local employers contributed about 83%. Penn's subsidy level, at 82%, was right in line with these employers, as the graph below shows.

The study also looked at the total amount of money employees pay for health care. We found that while Penn employees paid slightly more out of their paycheck last year compared to the market average, the "out-of-pocket" costs (expressed as a percentage of the total cost) were between 2 and 4 percent lower, as shown below. Out-of-pocket costs include such items as copayments for doctor visits and prescription drugs and annual deductibles.

We also compared just our faculty health care benefits (identical to benefits for staff) to those offered by other Ivy League and Tier One Research Institutions. The results showed that the amount we contribute to the cost of faculty health care--relative to the level of benefits delivered--is more generous than what our competition contributes. In addition, we learned that very few institutions still subsidize dental benefits as Penn does.

-- Barbara J. Lowery, Associate Provost
-- John J. Heuer, Vice President for Human Resources

Almanac, Vol. 48, No. 25, March 5, 2002


March 5, 2002
Volume 48 Number 25

Rising health care costs and Penn's health care benefits compared to others in Philadelphia and nationally.
The Lee Center for Criminology will create a computerized offender tracking system to help law enforcement.
Penn Police has a procedure for filing complaints against police but the UA recommends the creation of a Community Review Board.
What's in a name? The new prek-8 school wants input.
ISC Networking and Telecommunications service and rate changes go into effect July including the elimination of the Express Modem Pool.