THCB

Healthcare Spend at Historic Low

In a rare bit of good news for the Obama administration and budget policymakers,  health care costs increased last year at their slowest pace since the advent of Medicare and Medicaid in the mid 1960s.

The new analysis, released on July 25 by officials at the Centers for Medicare and Medicaid Services, the agency that administers the two programs, showed health care spending grew last year at a “historic” low  3.9 percent rate, which is slightly below 2009’s record-setting low of 4.0 percent. Health care spending as a share of the economy remained stuck at 17.6 percent, a welcome change from most years when it increases its share of total economic activity.

At a time when the White House and congressional leaders are worried about rampant long term growth of the government’s major health care  insurance programs for seniors and the poor, the new data will allow government actuaries to project growth in  Medicare and Medicaid over the next decade will be less than previously feared. This could potentially ease the task of the Obama administration and congressional leaders somewhat when they finally negotiate an agreement for slowing the growth of entitlement programs to help reduce the deficit.

Moreover, CMS actuaries are now saying the cost of insuring 30 million previously uninsured Americans under the president’s signature health care reform bill will add only a sliver to overall spending, and that increase is about half the projected growth rate of a year ago.

Looking ahead through 2020, CMS says health care spending will grow by 5.8 percent a year on average, which is about 1.1 percent faster than the rest of the economy. But only 0.1 percentage points of that growth will be due to the health care reform law. A year ago, CMS was projecting reform would raise health care spending an additional 0.2 percent a year.

Since nothing of substance has changed in the reform legislation, its lower projected cost is largely a byproduct of the overall reduction in health care spending, which health care economists said is being driven by a number of factors, including changes in consumers’ practices and more aggressive government oversight. “It’s too early to say that the Affordable Care Act will have a small effect on costs overall despite the coverage gains, but this is an optimistic sign,” said Alan Garber, an economist and physician at Stanford University.

Garber cited a number of factors beyond the recession that is lowering the average American’s propensity to consume fewer health care services. About one in seven privately insured Americans now belong to high co-pay, high-deductible plans, which force them to think twice about non-emergency care. “It makes people more aware,” Garber said. “It’s not play money. It’s your money. That may be having an effect.”

There have also been highly publicized crackdowns on Medicare fraud in areas of the country like Florida where costs and utilization rates are high. CMS is now projecting health spending on the elderly will only grow to $636 billion in 2014 from $525 billion in 2010.

That’s $35 billion less than what had been projected for 2014 a year ago. Moreover, CMS’s projection for Medicare spending in 2020 is $922 billion, whereas a year ago the actuaries were anticipating spending of $978 billion in 2019.

The actuaries cast cold water on the idea that delivery system reforms included in the new health care insurance legislation were driving the changes. “There is hope that research into innovative ways of delivering care will lead to slower growth,” said Richard Foster, CMS’s chief actuary, “but until those kinds of innovations have been designed and tested, we won’t have a sense of how large those savings will be.”

CMS’s projections for Medicare – last year or this year – do not include the so-called “doc fix.” Every year, Congress appropriates enough money to avoid a scheduled cut in pay for physicians who treat the elderly.

“If, as is far more likely, the 29.4 percent cut is avoided and the out-year cuts are eased, then spending levels and growth rates will increase significantly,” said Joseph Antos, a senior fellow at the American Enterprise Institute. “Under these more realistic assumptions, NHE [national health expenditures] will easily exceed 20 percent of GDP in 2020, and perhaps even earlier.” CMS currently projects health care spending will reach 19.8 percent of  the Gross Domestic Product by 2020.

Antos also pointed out that there will be a one-time spike in health care spending in 2014 as the 30 million newly insured Americans purchase drugs and physician services that they previously did without, and those costs will become embedded in overall costs.

But Garber, who has chaired a Medicare advisory committee that makes coverage recommendations, said that could actually lower costs. “There’s new research that says Medicare Part D (the prescription drug benefit) by making drugs more affordable is lowering costs elsewhere in the system,” he said. Lowering blood pressure with affordable generic drugs is a lot cheaper than paying for treating heart attacks.

A growth rate that falls to just 1.1 percent faster than the rest of the economy grows has its own implications for the health care  reform legislation, which created an Independent Payments Advisory Board to make recommendations for Medicare cuts whenever its growth exceeds GDP plus 1 percent. If the projections pan out, IPAB’s task will be much easier, and its recommendations to future Congresses and the elderly easier to swallow.

Republicans have charged the IPAB will lead to government rationing of health care, and have attacked the idea of the board, which hasn’t been appointed as of yet–a central talking point it their efforts to repeal reform.

In a rare bit of good news for the Obama administration and budget policymakers,  health care costs increased last year at their slowest pace since the advent of Medicare and Medicaid in the mid 1960s.

The new analysis, released early Thursday by officials at the Centers for Medicare and Medicaid Services, the agency that administers the two programs, showed health care spending grew last year at a “historic” low  3.9 percent rate, which is slightly below 2009’s record-setting low of 4.0 percent. Health care spending as a share of the economy remained stuck at 17.6 percent, a welcome change from most years when it increases its share of total economic activity.

At a time when the White House and congressional leaders are worried about rampant long term growth of the government’s major health care  insurance programs for seniors and the poor, the new data will allow government actuaries to project growth in  Medicare and Medicaid over the next decade will be less than previously feared. This could potentially ease the task of the Obama administration and congressional leaders somewhat when they finally negotiate an agreement for slowing the growth of entitlement programs to help reduce the deficit.

Moreover, CMS actuaries are now saying the cost of insuring 30 million previously uninsured Americans under the president’s signature health care reform bill will add only a sliver to overall spending, and that increase is about half the projected growth rate of a year ago.

Looking ahead through 2020, CMS says health care spending will grow by 5.8 percent a year on average, which is about 1.1 percent faster than the rest of the economy. But only 0.1 percentage points of that growth will be due to the health care reform law. A year ago, CMS was projecting reform would raise health care spending an additional 0.2 percent a year.

Since nothing of substance has changed in the reform legislation, its lower projected cost is largely a byproduct of the overall reduction in health care spending, which health care economists said is being driven by a number of factors, including changes in consumers’ practices and more aggressive government oversight. “It’s too early to say that the Affordable Care Act will have a small effect on costs overall despite the coverage gains, but this is an optimistic sign,” said Alan Garber, an economist and physician at Stanford University.

Garber cited a number of factors beyond the recession that is lowering the average American’s propensity to consume fewer health care services. About one in seven privately insured Americans now belong to high co-pay, high-deductible plans, which force them to think twice about non-emergency care. “It makes people more aware,” Garber said. “It’s not play money. It’s your money. That may be having an effect.”

There have also been highly publicized crackdowns on Medicare fraud in areas of the country like Florida where costs and utilization rates are high. CMS is now projecting health spending on the elderly will only grow to $636 billion in 2014 from $525 billion in 2010.

That’s $35 billion less than what had been projected for 2014 a year ago. Moreover, CMS’s projection for Medicare spending in 2020 is $922 billion, whereas a year ago the actuaries were anticipating spending of $978 billion in 2019.

The actuaries cast cold water on the idea that delivery system reforms included in the new health care insurance legislation were driving the changes. “There is hope that research into innovative ways of delivering care will lead to slower growth,” said Richard Foster, CMS’s chief actuary, “but until those kinds of innovations have been designed and tested, we won’t have a sense of how large those savings will be.”

CMS’s projections for Medicare – last year or this year – do not include the so-called “doc fix.” Every year, Congress appropriates enough money to avoid a scheduled cut in pay for physicians who treat the elderly.

“If, as is far more likely, the 29.4 percent cut is avoided and the out-year cuts are eased, then spending levels and growth rates will increase significantly,” said Joseph Antos, a senior fellow at the American Enterprise Institute. “Under these more realistic assumptions, NHE [national health expenditures] will easily exceed 20 percent of GDP in 2020, and perhaps even earlier.” CMS currently projects health care spending will reach 19.8 percent of  the Gross Domestic Product by 2020.

Antos also pointed out that there will be a one-time spike in health care spending in 2014 as the 30 million newly insured Americans purchase drugs and physician services that they previously did without, and those costs will become embedded in overall costs.

But Garber, who has chaired a Medicare advisory committee that makes coverage recommendations, said that could actually lower costs. “There’s new research that says Medicare Part D (the prescription drug benefit) by making drugs more affordable is lowering costs elsewhere in the system,” he said. Lowering blood pressure with affordable generic drugs is a lot cheaper than paying for treating heart attacks.

A growth rate that falls to just 1.1 percent faster than the rest of the economy grows has its own implications for the health care  reform legislation, which created an Independent Payments Advisory Board to make recommendations for Medicare cuts whenever its growth exceeds GDP plus 1 percent. If the projections pan out, IPAB’s task will be much easier, and its recommendations to future Congresses and the elderly easier to swallow.

Republicans have charged the IPAB will lead to government rationing of health care, and have attacked the idea of the board, which hasn’t been appointed as of yet–a central talking point it their efforts to repeal reform.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and Financial Times. You can read more pieces by him at GoozNews, where this post first appeared.

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fallfashion2014.comuwsdlvrdHayleDoc BrownCraig "Quack" Vickstrom, M.D. Recent comment authors
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fallfashion2014.com
Guest

You’re so interesting! I do not suppose I’ve read a single thing like that before.

So nice to discover somebody with original thoughts on this topic.
Seriously.. many thanks for starting this up. This website is something that is needed on the internet, someone with a little originality!

uwsdlvrd
Guest

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Hayle
Guest

You’ve really caturped all the essentials in this subject area, haven’t you?

Barry Carol
Guest
Barry Carol

Doc Brown – I hear what you’re trying to say. Some suggest that more and better primary care, coupled with universal coverage, could keep people healthier for a longer time period. However, there are a number of things I wonder about. First, there is plenty of illness that strikes even people that lead healthy and disciplined lives. Cancer is the biggest killer of the under 65 population in the U.S., for example, though heart disease is the biggest killer overall. We lose a sizeable number of people in car accidents and other accidents. Firearms kill 25,000-30,000 people per year. Diseases… Read more »

Barry Carol
Guest
Barry Carol

Margalit – I think many ER’s are already establishing urgent care clinics either on the hospital campus or very close by so triage nurses can divert non-emergency cases to those facilities and free up ER physician time for more urgent cases. There is a lot more we could do to encourage people to execute living wills and advance directives. It could be part of the standard procedure upon admission to a nursing home. It should be addressed very early on for patients diagnosed with cancer, Alzheimer’s, dementia, CHF and ESRD among other conditions. As a failsafe, my personal preference would… Read more »

Barry Carol
Guest
Barry Carol

Margalit – It’s not just the worried well demanding an MRI for a headache that’s driving our healthcare costs skyward. There is plenty of overtreatment being given to the 20% of patients who drive 80% of costs as well. Part of this is due to the litigation environment. I’ll offer the following three examples that are somewhat different from the traditional notions of defensive medicine: 1. A patient calls his PCP with a problem and seeks an appointment but the PCP can’t see him until the next day. There is a very small chance that it could be something serious.… Read more »

Margalit Gur-Arie
Guest

Barry, The interesting thing is that at least for #1 and #2 there could be “an American solution consistent with American values and culture.” We have 24 hour gas stations, banks, grocery stores and pharmacies. Why can’t we have 24 hours urgent primary care clinics? The endless minute clinics and urgent cares opening everywhere, all close late afternoon. An urgent primary care office (across the street from the ER) would go a long way to reduce ER utilization. Where are the entrepreneurs? As to #3, honestly, and I think this may sound odd, but it is very American, why not… Read more »

Nate Ogden
Guest
Nate Ogden

Margalit read this again, then go through history; From the conservative point of view, liberals often tend to see an injustice or inequity in the world, pass a law to fix the inequity, and move on to the next problem. Conservatives think of themselves as approaching the same policy problems with pessimism and skepticism, because they are trying to look two moves ahead: what incentives will the new law distort? What new injustices or inequities will be triggered by these reforms? This is not to say that liberals don’t try to think about the long-term consequences of their proposed reforms.… Read more »

Craig "Quack" Vickstrom, M.D.
Guest
Craig "Quack" Vickstrom, M.D.

Nate, I think your critique of liberalism is mostly spot on. Liberals do tend to see a government solution to everything. They also don’t look ahead to the law of unintended consequences. We really fall down on this one. That said, conservatives tend not to see problems. Period. Slavery. Child labor. Corruption. Segregation. Environmental degradation. Work place injuries and safety. Gender inequality. Minority persecution. You get the point. These things were OK back in the day, because we’ve always done it that way. Conservatism by its very nature sees the status quo as acceptable. Liberalism does not and attempts, through… Read more »

Nate Ogden
Guest
Nate Ogden

That said, conservatives tend not to see problems. Period. Slavery. Who ended slavery? I think your also confusing republicans, a very small set at that, with conservatives. There is no bigger protectors of the enviroment then conservatives. Hunters, fishers, and such do 10 times more then liberals sitting in their ivory towers to actually help the enviroment. I think your also giving the liberals far more credit for doing something when something was actually harmful. Sometimes doing nothing is more humane then doing something for the sake of doing something. Would you argue the poor are better off after housing… Read more »

Margalit Gur-Arie
Guest

The Republican party in President Lincoln’s times has nothing in common with the Republican party today and same is true for what was referred to as Democrats back then. Welfare? Do you mean feeding stray animals, as Andre Bauer (R) put it very succinctly? Democrats treated Palin the way they did not because of her gender. More seniors need assistance today not because of Medicare, but because medical care today is much more expensive than it was in 1965 and because big business prevented most people from improving their financial situation during the last few decades. Without Medicare and Medicaid… Read more »

Nate Ogden
Guest
Nate Ogden

no i mean paying people to have more babies, a system that incentivies people not to marry and live together. A system that gives people just enough so they can get by but never enough to get out. “Democrats treated Palin the way they did not because of her gender.” Yet any time you critique Obama its racist? Or speak of welfar its racist, or disagree with NOW your sexist. The left is famous for this double standard. “because medical care today is much more expensive than it was in 1965” Why is Medical care much more expensive? Becuase of… Read more »

Margalit Gur-Arie
Guest

“… a democratically elected President will not be allowed to govern as a Democrat” Oh no, I cannot take credit for that idea. It comes straight from your conservative boy wonder Grover Norquist. It seems that the Neo-Republican philosophy is to talk as many people as possible out of voting, and if that doesn’t work, just threaten to blow up the country (and mean it) unless the Democrats do what they’re told. Democracy is overrated anyway…. It’s all about capitalism and the rights of propertied gents. The more property, the more rights. The rabble should be content with canned beans… Read more »

Nate Ogden
Guest
Nate Ogden

“The rabble should be content with canned beans and if they work hard an old truck and a good rifle and maybe even a couple of gold coins sewn in their hunting jacket.”

which is far more then you have done for inner city poor, or as you like to see them votes, makes it easier to use them if you dehumanize them.

Don’t worry we know the kind hearted liberals would never allow them to have guns, or gold coins, or a job to work, they might get the wrong idea

Barry Carol
Guest
Barry Carol

“I think I understand the Swiss system and I am fine with it.” Since virtually everything else in Switzerland is much more expensive that it is in the U.S., especially since the currency is up almost 35% vs. the dollar over the last year, there are several aspects of the system that I would like to understand better including the following since healthcare is cheaper at least as a percentage of GDP: 1. How does the government define what will be in the basic benefit package and later, as new drugs, devices and techniques or developed, determine whether or not… Read more »

Margalit Gur-Arie
Guest

Barry, I would assume that government defines the basic benefit in a way similar to how CMS defines the Medicare benefits. I do agree that CMS needs to take cost into account, but not based on individual circumstances. For example, CMS can decide if they will pay, or not pay, for a drug that has been shown to extend life by two weeks. CMS should not decide that for patient A, the drug will be paid for, but for patient B it will not. This type of judgement looks very slippery to me. I also don’t know what people in… Read more »

Nate Ogden
Guest
Nate Ogden

just becuase 80% only use 20% doesn’t mean that 20% isn’t still a very big number that could be smaller. Using really rough numbers

60 million people average $26,666.67
240 million people average $1,666

Even if we assumed the 240 million used healthcare optimally that leaves 60 million people making terrible decisions and getting their MRI fix weekly

Margalit Gur-Arie
Guest

Nate, you have claims and I assume you have a computer. Why don’t you check what percent of your insureds had an MRI this year and what percent had one every week and let us know.

Margalit Gur-Arie
Guest

Barry,

I would oppose a QALY based system. I would oppose rationing by circumstances and by ability to pay. I am perfectly willing to shoulder a higher tax burden to prevent these inequities because of the same reasons Nate is opposing government financed health care – unintended consequences.

I think I understand the Swiss system and I am fine with it. So my question to Nate, one more time, would you support universal care Swiss style Nate?

Nate Ogden
Guest
Nate Ogden

My answer to Margaliut one more time; “Nope, nothing in the constitution allows the federal government to sponsor healthcare and they have failed miserably at it so far” ” I am perfectly willing to shoulder a higher tax burden to prevent these inequities” And your liberal short comming raise their head once again. No matter how many times history hands it back to you why do liberals never learn? Just because you pass a bill called the Affordable Care Act doesn’t mean care will be affordable. You say your willing to shoulder higher taxes for an inequality free system. Are… Read more »

Barry Carol
Guest
Barry Carol

“I take it that he would support a tax financed health care system similar to the Swiss one. I would too. Would you, Nate?” Margalit – It’s not tax financed the way Medicare is. All of Medicare Part A is taxpayer financed as are 75% of Parts B and D. The Swiss who can afford to are expected to purchase a health insurance policy on their own and deductibles can range up to 2,300 CHF or about $3,175 at the recent exchange rate. About 30%-40% of the population qualifies for a taxpayer financed subsidy to help lower income people purchase… Read more »

Barry Carol
Guest
Barry Carol

I think the British made a societal decision a long time ago to spend less as a percentage of GDP on healthcare than other countries are willing to. I also think it’s outrageous to deny people the right to spend their own money for services that the NHS won’t pay for without losing access to the coverage it will pay for. That said, I think the QALY is a logical way to make judgments about what will and won’t be paid for. No society can afford to pay for everything and anything that a doctor thinks might be at least… Read more »

Barry Carol
Guest
Barry Carol

“Everyone dies in the end. The question is do you die today or do you die next week after spending an additional $300,000. The question to you and those that think like you is how much of your kids and grandkids future do you want to blow for that extra week? Is that extra week in a hospital bed worth your grandkids suffering under a 50% tax burden instead of 35%?” This is really the key point. I know I sound like a broken record when I keep saying that resources are finite and we can’t afford to give everything… Read more »

Nate Ogden
Guest
Nate Ogden

Margalit your looking at it all wrong. Health Insurance has nothing to do with health. At least it shouldn’t. No an unlimited cap is not going to change the number of ill people, no one ever argues that. What it does effect it hospital and provider charges and billing. If hospitals can get paid more they will charge more. If Pharma can get someone to pay $90,000 for a drug they will sell a $90,000 drug. Now I would imagine they would start selling individually targeted treatments based on ones DNA at some price we never imagined possible before. “Or… Read more »

Margalit Gur-Arie
Guest

I don’t want to spend anything for an extra week in a hospital bed. Actually I am willing to pay for avoiding an extra week in a hospital bed, or month, or year…..

The problem here Nate is that when PPACA suggested that we at the very least ask patients if they want that extra week, and most probably don’t even if it’s “free”, a whole bunch of people started screaming about death panels.
If consulting with patients on this subject is death panels, then how do you classify caps on what insurance will pay? Death without panels?

Nate Ogden
Guest
Nate Ogden

“PPACA suggested that we at the very least ask patients if they want that extra week, and most probably don’t even if it’s “free”, a whole bunch of people started screaming about death panels.” We might have a problem if what you said was even remotely true. PPACA didn’t just ask patients if they want an extra week. Did you forget about the government panels making coverage decisions. Somehow when people complained about government panels possibly turning into death panels you missed that entire argument. But when someone talks about pallative care consultations you take the unrelated panel concern and… Read more »

Margalit Gur-Arie
Guest

OK, I read Avik Roy’s post, and some of his replies to comments. I think the crux of the matter is that there is an implied assumption in the conservative argument, that if government finances health care through taxes, then government will assume the right to prevent people from buying additional services. While this may be true in the NHS, it is not true in other “universal care” systems. I don’t know why conservatives feel compelled to compare universal health care with, of all things, the NHS. The NHS is an integrated delivery system, where the government owns the delivery… Read more »

Nate Ogden
Guest
Nate Ogden

” if government finances health care through taxes, then government will assume the right to prevent people from buying additional services. While this may be true in the NHS, it is not true in other “universal care” systems.” Medicare already does it as does the VA and Medicaid. NHS also has one of the older systems, give these other systems another 5-10 years and they will be to. “I’m sure that some liberals here advocate for such a system in the US.” Some? The polls I read say most, the lack of a single payor option was their biggest complaint… Read more »

Barry Carol
Guest
Barry Carol

For many years, my self-funded employer’s health insurance plan had a $1 million lifetime benefit cap. A few years ago, it raised the cap to $5 million. The only reason that there is a cap at all is cost. This is a generous employer that operates in a highly competitive and very cyclical industry with plenty of years that are not profitable. We don’t have unlimited resources and must factor that fact into the cost of benefits we can provide. It would be enormously helpful if government were more sensitive to that reality as well.

Margalit Gur-Arie
Guest

Barry,
What is the realistic effect of these caps on cost? How many people ever reach these caps? Does the number of severely ill people change because the caps are, or are not, there? And what happens when they do reach the cap? Who pays for subsequent care? The government? Or do they just go home and die?

BobbyG
Guest

“an American solution consistent with American values and culture.”
___

Yeah, they’re on such stellar display these days.