Hospital, Employment, and Price Indicators for the Health Care Industry: Third Quarter 1999

Health Care Financing Review, Spring, 2000 by Shannon Martin, Mary Lee Seifert, Mark Zezza

KEY TRENDS

* Hospital insurance (HI) trust fund assets rose 12.9 percent in the third quarter of 1999 when compared with the same period of the previous year. Estimates in the 1999 Annual Report of the Board of Trustees of the Federal Hospital Insurance trust fired indicate that, given current law and trends, the Medicare Part A trust fund will be exhausted in 2015.

* Employment in home health appears to be nearing a turnaround in the third quarter of 1999. Although the third quarter of 1999 was the seventh quarter of decline, home health's employment drop was only 0.8 percent when compared with the same period of 1998. This decline was significantly smaller than those of the previous 6 quarters. Home health employment and payroll decreases began in early 1998, following public sector actions to control Medicare spending growth and ongoing actions to detect fraud and abuse in this industry.

* Medical care prices continue to outpace overall prices as measured by the implicit price deflator, with the Consumer Price Index (CPI) for medical care about 2 percentage points higher. Meanwhile, growth in the Producer Price Index (PPI) for health services continues to track overall prices more closely than did the CPI.

* Hospital prices as measured by the CPI continue to rise, increasing an average of 4.0 percent over the past 3 quarters, when compared with the prior year. For the third quarter, the CPI for hospital services increased 4.2 percent.

* Nursing home prices continue to decelerate in the third quarter of 1999, a likely reaction to the actions required by the Balanced Budget Act (BBA) to control Medicare spending growth. Average hourly earnings, however, continue to accelerate, indicating either a skill mix shift where firms are utilizing higher skilled and higher paid workers or a tight labor market where firms were unable to find lower paid workers and offered higher wages to compete. Meanwhile, input prices overall, as measured by HCFA's input price index for nursing facilities continued the level trend displayed over several quarters.

* Home health care service prices have started to accelerate after several quarters of deceleration while input prices have remained fairly steady. At the same time, average hourly earnings continue to accelerate to 5.0 percent for the third quarter.

Medicare Trust Fund Operations

In the third quarter of 1999, Medicare HI (Part A) trust fund assets continued to increase (Figure 1). This sixth consecutive quarterly increase is the result of a strong economy and low unemployment that continued to boost trust fund income while the BBA 1997 and efforts to reduce fraud and abuse continued to constrain outlay growth. In the third quarter, income rose by 23.3 percent while Medicare Part A outlays declined 6.9 percent, resulting in a 12.9-percent gain (or 885.3 billion increase) in assets when compared with the same quarter in 1998.

[Figure 1 ILLUSTRATION OMITTED]

The reverse was true for Medicare supplementary medical insurance (SMI or Part B). Outlays rose at a faster pace than income--15.2 percent and 4.4 percent, respectively.

Total Medicare outlays (Part A and Part B combined) rose 0.6 percent in the third quarter of 1999 when compared with the same period of the previous year.

Estimates published in the 1999 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund (Board of Trustees of the Federal Hospital Insurance Trust Fund, 1999) indicate that, given current law and trends, the HI Trust Fund will be exhausted in 2015.

Health Services Industries

Employment

Employment in home health care services appears poised for a turnaround. Although the number of employees fell for the seventh consecutive quarter in third quarter of 1999, when compared with the same quarter of the previous year, the rate of decline continued to slow. Employment fell only 0.8 percent, after declines of 8.1, 6.6, and 3.3 percent in the prior three quarters, respectively. Employment in nursing homes and personal care facilities also declined slightly, experiencing a drop of 0.3 percent. Despite this fourth consecutive quarterly decrease, all drops have been modest (-0.4, -0.6, and -0.6 percent). At the same time, the growth of hospital employment appeared to be slowing (refer to Table 5). Private hospitals' third quarter 1999 growth rate of 0.9 percent was the first increase of less than 1 percent since the first quarter of 1996. However, deceleration of the pace of employment increase has occurred for 4 quarters.

Table 5

Percent Change in Employment, Hours, and Earnings in Private(1) Health Service Establishments, by Selected Type of Establishment: 1995-1999