Health care expenses have been slowing since '05

Federal law has helped existing trend

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In this week's State of the Union address, President Barack Obama suggested the nation will save on health care expenses now that his landmark Affordable Care Act is the law of the land.

"Already the Affordable Care Act is helping to slow the growth of health care costs," Mr. Obama said Tuesday night.

Statistically, he is right -- health care expenses are indeed flattening. But it turns out that health expenses were moderating, relative to historical increases, before his health care overhaul even took effect, and the slowdown is as persistent as it is puzzling.

Two recent analyses point to the same general trend -- health care expenses are still growing, but at record-low levels.

A Feb. 7 report from the Altarum Institute, a Michigan-based health consultant, said that growth in national health spending hit 4.3 percent in 2012, the fourth straight year of increases near 4 percent, the best such stretch in 50-plus years of record keeping. Year-over-year prices, from December 2011 to December 2012, grew by an estimated 1.7 percent, the lowest such increase in 14 years.

"The health case cost curve actually started to bend in the middle of 2005," which is five years before the Affordable Care Act was signed into law, and "certainly well before the recession," said Ani Turner, deputy director of the Altarum Institute's Center for Sustainable Health Spending.

So if it's not the recession, or the 2010 health care overhaul, what's at play here?

"What happened, and whether it will continue, and why ... nobody knows for certain," Ms. Turner said.

But the U.S. Congressional Budget Office is certain enough that it is reducing the nation's budgeted health care expenses through 2020. In numbers released last week, the CBO revised its projected spending on Medicare and Medicaid over the next seven years, based largely on those moderating cost increases and utilization trends.

The budget office now says that spending on Medicare and Medicaid by 2020 will be about $200 billion (15 percent) less than the office projected just three years ago.

While this slowdown in national health spending is unprecedented in modern terms, there have been prolonged periods of moderate spending increases, notably in the mid-1990s during the height of managed care.

This slowdown, however, is different, if only for the variety of factors at play. The recession, while it may not have caused the slowdown, has aided in its persistence, forcing down health care utilization rates. And when demand for health services slows, prices generally flatten, even in an industry where so much of the pricing is tied up in growth in technology expenses.

"Prices are low. And they're going to stay low for the next few months, or the next few years," said Paul Hughes-Cromwick, senior health economist, also at the Center for Sustainable Health Spending.

But the recession accounts for only so much of the slowdown, particularly in Medicare and Medicaid spending. Those populations are somewhat insulated from recessions and high unemployment rates -- Medicare patients because they are over 65 and largely retired, and Medicaid patients because they are poor or disabled to begin with.

Beyond the recession, hospitals and insurers have been trying to change the way they do business, moving slowly from a fee-for-service environment, where the insurer pays for every test or visit or "piece" or care, toward payment models that take quality of care into account, capping hospital payments when complications occur, trying to cut back on readmissions.

Overall price inflation is low, too, Ms. Turner noted, which is having a natural dampening effect on health care costs.

And while the effects of the Affordable Care Act's two main provisions -- adding millions to the rolls of the insured by expanding Medicaid eligibility, and adding millions more by requiring those without coverage to buy a policy through a health insurance "exchange" -- remain unknown, the effect on health care expenses should be minimal.

"It causes a one-time bump up," Ms. Turner said. "But it's on the order of 2 to 3 percent." The highest-cost populations -- the elderly and the disabled -- generally already have insurance through Medicare or Medicaid.

Even though the price flattening predates the enactment of the Affordable Care Act, the law has played a role in the downward cost pressure the health sector is seeing, said Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, an influential Washington, D.C. think tank that studies policies affecting low- and middle-income households.

Cuts in Medicare payments to hospitals and cuts in benchmark payments to Medicare Advantage plans -- both byproducts of the Affordable Care Act -- have "also started to slow health care cost growth," he said.

Those cuts are part of the reason that net Medicare outlays grew by 3 percent, or $16 billion, in 2012 -- "a slower rate of growth than any recorded since 2000," according to the CBO.

Another element of that "savings" is that several states do not intend to enact the now-optional Medicaid expansion -- thereby saving Medicaid outlays that had been built into previous budget office predictions.

But those predictions are grounded partly in the faith that lawmakers won't drastically alter the way Medicare or Medicaid operate, which is never guaranteed.

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Bill Toland: or 412-263-2625.


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