Between 1980 and 2009, healthcare expenditures grew by 7.4 percent, which most economists agree would bankrupt the nation if continued. But a closer look at the statistics reveals that the last 10 years in that period saw only a 5.9 percent increase, and the spending growth from 2009 to 2011 dropped to 3.1 percent.
The three questions on everyone’s mind are: What’s responsible for the slowdown? Will it continue? What are its implications?
Alexander J. Ryu, and his associates at Harvard Medical School believe two factors may be partially responsible for the recent decline: job loss and changes in health insurance policies, both of which have put a heavier burden on the public, requiring them to pay a larger portion of their medical expenses. Naturally one would expect total health spending to slow down if patients have higher out of pocket costs.
In a recent Health Affairs report, Ryu and associates analyzed insurance data on more than 10 million enrollees who were covered by large companies between 2007 and 2011. Their analysis revealed that out-of-pocket costs did in fact go up during that period. According to their calculations, these changes account for about a fifth of the recent decrease in U.S. healthcare spending.
They also found that when changes in insurance benefits were factored out of the equation, the drop in U.S. spending persisted, suggesting other factors were at play. The authors believe “a reduction in the rate of introduction of new technology was also at work.”
While the authors of the Health Affairs report believe that current trends support cautious optimism that the spending slowdown may persist,” not everyone agrees with that assessment.
“Three years in a row of 4 percent or less doth not a long-term trend make,” said Paul Keckley, executive director of the Deloitte Center for Health Solutions.
Consumer surveys have found that patients have put off about 20 percent of elective procedures, Keckley noted, and that may suggest changes in health insurance design are partially responsible for putting the brakes on healthcare spending.
But more revealing is that the GDP was down about 1.5 percent so “even though the health spend slowed to 4 percent, it stayed on a 35-year trend line that’s 2.5 percent above the GDP … So health spending exceeded the overall growth of the economy by another 2.5 percent a year.”
Patrick Riley, a senior healthcare industry analyst at Frost & Sullivan, does believe that the drop in U.S. healthcare spending represents a trend.
Economists estimate that about 37 percent of the slowdown in health spending between 2007 and 2011 resulted from the recession itself, said Riley. But there are several other forces at play here, he noted.
Riley echoed the Health Affairs report, saying that increased out-of-pocket costs for consumers are driving some of the decreased healthcare spending.
The other major factor, he said, has been the introduction of the Affordable Care Act and its mandates.
The Centers for Medicare & Medicaid Services are reducing payments to hospitals – imposing penalties in 2013, for example, if they allow avoidable readmissions for acute myocardial infarction, pneumonia and congestive health failure to exceed specified levels.
Still, national health spending will accelerate in 2014, jumping to a 6.1 percent growth rate, as more individuals access health insurance under the Affordable Care Act, according to CMS projections made in the fall.
Health reform changes taking effect in 2014, including enrolling individuals through insurance exchanges and expanding Medicaid, will drive more spending, as well as expectations that the economy will gain steam.
National health spending will increase 1.6 percentage points faster in 2014 than it would have without the ACA, said Stephen Heffler, director of the national health statistics group in the CMS Office of the Actuary.
In 2014, over 11 million people will gain coverage, with 2.9 million through private insurance on the exchanges and about 8 million through Medicaid, Heffler said. Some states anticipate expanding their Medicaid programs after 2014, so an additional 8.8 million people are expected to enroll in Medicaid by 2016.
In 2015, the spending will back off somewhat to a 5.8 percent growth rate and then steadily rise again, to 6.5 percent in 2022.
“Although the projected growth is faster than in the recent past, it is still slower than the historical rate over the long term,” said Gigi Cuckler, an economist for the CMS actuary and lead author of the study. “We expect the newly insured to be younger and healthier and therefore use more physician healthcare and prescription drugs than hospital services.”