Economics, Health Care

US national health care spending continues trend of slow growth

1.9.13 OOPS vs Total HC Expenditure

Opening day for national health spending analysis comes every year in early January, when the actuarial team at the Centers for Medicare and Medicaid Services(CMS)  throws out the first ball of figures to Health Affairs readers. This also triggers several early rounds of rear-view interpretation in major media outlets, primarily aimed at reconciling the latest factoids with seasonally adjusted political conventional wisdom that tends to change grudgingly, at best. When the  usual “expert” suspects (or is that “suspect” experts?) are rounded up, they generally find that the latest evidence once  again remarkably confirms their previous theories (more or less). The health policy dogs bark, but the spending caravan goes on…..

Yesterday, the latest such article, “National Health Spending in 2011: Overall Growth Remains Low, But Some Payers and Services Show Signs of Acceleration,” reflected the careful expertise of the CMS team in teasing out some limited trends and insights available from the latest year of national health expenditure account numbers. The primary takeaway is that national health spending continued to grow slowly (compared to past long-term trends) for the third consecutive year. Its 3.9% annual growth rate closely tracked slow annual growth in the overall economy (nominal gross domestic product, or GDP).

Several years ago, few if any analysts saw this latest trend coming. Nevertheless, there remains no shortage of catch-up explanations for describing why it happened, after the fact. Forecasts of the future, however, tend to be about as persuasive as the past ones that proved to have early expiration dates.

The CMS analysts are not clairvoyant, but they at least tend to be more cautious and data-based than outside spin artists, who usually start with a conclusion and work backwards to find a modicum of support in the spending data. Several of their findings stand out as particularly noteworthy:

•    The recent severe recession (unlike past ones in the post-World-War-II era) had an immediate effect on health care spending. For example, 2010 registered the slowest rate of annual personal health care spending growth (3.7%) in the entire history of National Health Expenditure Accounts statistics (which started in 1960).

•    From 2007 to 2010, the combination of high unemployment, considerable reduction in the number of people with private health insurance, lower household income and assets, and financial uncertainty produced much slower growth in the use and intensity of health care services.

•    “People tend to seek less medical care when they lack coverage.” (Duh)

•    Medicaid spending grew more slowly in 2011, as state governments responded to the expiration of more generous federal matching assistance payments and their own tightened budgets.

•    The impact on aggregate health spending growth of early provisions of the Affordable Care Act in effect in 2010 and 2011 was “minimal” in those  years. (Most prominent provisions of Obamacare will not be implemented until 2014).

One of us has written previously about some of these trends and earlier national health spending reports. To provide an update that goes beyond the raw numbers and conventional wisdom, consider the following:

(1)    The curious incident  of the “increased” cost-sharing trend that never barks in the night

Buried within the many decades of annual health spending data is the only consistent trend, since 1960. It is rarely highlighted as a major factor fueling health costs that grow faster than the overall economy. In almost every year, the share of Out-Of-Pocket Spending (OOPS) for health services relative to total national health spending has declined! (The two exceptions – in 1997 and 1998 – were mostly due to a sudden surge in cost sharing for prescription drugs). In 2011, it dropped again, to 11.39%.

How low can it go? When the Affordable Care Act’s expanded subsidies for  insurance coverage kick in during 2014, OOPS is projected by CMS to fall to 10.15% of total national health spending and continue to drop down annually to reach 9.4% in 2021.

Nevertheless, many health policy commentators continue to suggest that higher cost-sharing (i.e., first-party, out-of-pocket payment) in recent years has become a growing problem for many financially troubled Americans, or helped slow the growth of health spending, or did BOTH! As if.

The relatively low “leverage” ratio between the costs that US consumers see directly and what they can spend with Other People’s Money (OPM) – through major health entitlement programs like Medicare, Medicaid, and, soon, Obamacare, plus tax subsidies for private employer-sponsored health insurance — remains unabated as a driving force behind excess health spending growth.

(2)    Don’t worry about runaway Medicaid spending growth. The program’s future problems will involve hollow coverage and declining quality.

When budgetary push comes to political shove, states will still find ways to limit growth in THEIR SHARE of Medicaid program spending. Even during a year of ACA-imposed “maintenance of effort” mandates, states still slowed their rate of Medicaid spending in 2011 well under the overall national trend level; primarily by slashing reimbursement to health care providers even further below the actual cost of services. And when the ACA’s promise of 100% federal funding for newly eligible Medicaid beneficiaries, starting in 2014, soon runs out of sustainable funding, the latest Medicaid coverage bubble will begin to burst.

(3)    Did the Obama administration already launch a preemptive strike against health spending levels?

The real impact of Obamacare on health care costs remains untested thus far. Its supporters may hope that at least some portions of its proposed tool kit of government-centered “innovations” can work in practice, but evidence that they can be scaled up and replicated nationwide remains lacking. Meanwhile, the sustainability of the new health law’s mismatch between greater subsidized demand for care and more limited supply of health care providers, to be paid at increasingly lower rates, will be tested severely beginning in 2014.

A full explanation for the recent years of lower health spending growth, and more convincing projections for how much longer this trend will last, remain unsettled matters. But it’s clear that the Great Recession was at least a substantial factor, and a further period of fitfully uneven economic growth and public policy uncertainty has helped dampen growth in health spending. Given the Obama administration’s continued preferences for higher taxes, increased federal spending, large budget deficits, expanded entitlement programs, and hyper-regulation, the president may indeed have come up with his own unique way to control health care costs. But slowing down the economy, limiting job growth, discouraging private health coverage, penalizing capital formation, and reducing the rewards for risky innovation is a steep price to pay. Bleeding the economy won’t cure a sick health system.

One thought on “US national health care spending continues trend of slow growth

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