Why Didn’t the President Mention the Latest Good News on Health Costs?

President Obama rarely shies away from an opportunity to tout successes in U.S. health care, but in last night’s State of the Union oddly omitted any mention of the new and optimistic report about U.S. health spending from actuaries at the Centers for Medicare and Medicaid Services (CMS).

The finding: from 2009 through 2012, health care spending in the U.S. grew at the slowest rate since the government started collecting this data in the 1960s.

The actuaries found that in 2012 spending “stabilized,” growing by 3.7 percent in 2012, and health care accounted for a slightly smaller percent of GDP than the prior year, 17.2 percent versus 17.3 percent in 2011.

Perhaps an actuarial report proclaiming stable growth doesn’t make for much of an applause line for a State of the Union speech. But for confessed policy wonks like me, it’s as good as a Hollywood blockbuster.

So get out your popcorn, here are five Hollywood moments in the report.

1. Ninja Combat

When the report came out in early January, the Obama administration quickly ascribed the good news to Obamacare. But, lo and behold, the actuaries wielded their slide rules like weapons.

They respectfully disagreed with their president, pointing out that few of the provisions in the health reform law were actually in place during the slow-growth years in question. The actuaries conclude that most of the cost stability results from the economic recovery process.

Given the silence in the State of the Union, they may have been given the last word on the subject.

2. Plot Twists

While refusing to associate Obamacare with the successes in the report, the actuaries did credit at least some of the cost control to trends that derive from Washington policies. But in a twist, those policies don’t come from the current occupant of the White House, but from the last one.

Specifically, the actuaries cite the growth of high deductible health plans (HDHPs) as a factor in controlling health costs. HDHPs are plans, with deductibles as high as $1000 or more, forcing consumers to pay out of pocket the full cost of services like certain doctor visits or tests that traditional insurance would ordinarily have covered.

In exchange, consumers get a big break on the premium and they can use tax-advantaged health savings accounts to pay for those expanded out of pocket costs.

HDHPs came about from a hotly contested provision in the Bush Administration’s Medicare prescription drug coverage back in 2003, later enhanced in 2007, which expanded medical savings accounts and renamed them Health Savings Accounts (HSAs), and created some tax incentives to encourage HDHPs.

Today, as the actuaries point out, HDHPs cover one in five workers.

Many Democrats opposed the Bush provisions, suggesting that people would avoid needed care if they were forced to pay the full cost out of their pocket. This remains a reasonable concern closely watched by policymakers and researchers. But in yet another twist, Democrats’ signature health law promises to accelerate the trend.

Obamacare’s state exchanges, include many plan offerings, particularly “bronze” plans, with deductible levels unheard of prior to the advent of HDHPs.

3. Whodunnit

The report details major variations in growth among different industry sectors of health care. Who are the heroes and who are the villains? Forget the usual suspects. Two industry players we love to hate come out shining in this report: health plans and pharmaceutical companies.

Health plan administrative fees are down, and there’s only a slight sliver of growth in pharmaceuticals. Indeed, without these two industry segments, we wouldn’t have any good news about health costs at all.

By contrast, hospitals and physician services have grown significantly, far ahead of inflation, up 4.9 percent and 4.6 percent respectively. The actuaries say this is not driven by price increases, but instead by “increases in the volume and intensity of services provided.” This is an ominous sign.

With pressure to lower prices, perhaps hospitals and doctors are ratcheting up the volume of care, whether or not the care is needed. This is a known tendency in the health care system; the IOM estimates that upwards of a third of health care spending goes to unnecessary or wasteful services.

Cynical though it may sound, unlike other industries, health care providers create their own volume by ordering services for their patients/customers. Consumers and purchasers will be wise to watch this trend and get second opinions.

4. The Bagman

In the middle of one of the report’s charts showing dozens of different kinds of cost growth rates, almost all ranging from 1 to 5 percent, there’s a number that stands out like a sore thumb: 15 percent. That’s growth in Medicaid spending by state governments. The actuaries say the stimulus bill in 2008 added federal support to the states for enhanced Medicaid.

Then the stimulus money ran out, and as this report starkly shows, the states are left holding the bag.

5. The Sleight of Hand

Here’s a quiz for you. Which payer funds the biggest chunk of U.S. health spending?

A. Medicare
B. Medicaid
C. Employers
D. Health plans
E. Other

Correct answer: E.

What exactly is “Other”? Look in the mirror. Shockingly for all of us who think government and health insurance will take care of us when we are sick, in fact the largest spender on health care is you, the American consumer. The report shows that household spending—on the combination of health insurance premiums and out of pocket costs—is the source of 28 percent of the dollars in our $2.3 trillion healthcare system, more spending than any other sector.

For the enormity of that investment, consumers are treated as the anonymous “other,” dependents of the more powerful behemoths like health insurance companies or Medicare. But that perception is why providers hop to it when Medicare makes a tiny change in its reimbursement schedule, but your call button doesn’t work.

Though there are Hollywood moments here, there’s no Hollywood happy ending yet. The cost report is mixed, with both positive and negative signs.

We may or may not be seeing the impact of Obamacare, but we are seeing the impact of the American consumer and the business community.

They have much more influence than they know, if we could just get them to pay attention to our Ninja actuaries.

Leah Binder is the CEO of The Leapfrog Group, a voluntary program aimed at mobilizing employer purchasing power to alert America’s health industry that big leaps in health care safety, quality and customer value will be recognized and rewarded.

She blogs regularly at Forbes, where  an earlier version of this piece appeared.

21 replies »

  1. Read the study Al, that’s for the link.

    Startling first sentence was,

    “In 2008, Oregon initiated a limited expansion of its Medicaid program for low-income adults through a lottery drawing of approximately 30,000 names from a waiting list of almost 90,000 persons.”

    I wonder what the reaction would be to a lottery for Medicare benefits? It is a disgrace that as a modern, rich, industrialized nation this country needs to hold lotteries to determine who gets access to health care and who does not.

    I actually got a different understanding from the read than you.

    “We did, however, find a greater probability of receiving a diagnosis of diabetes (3.83 percentage points; 95% CI, 1.93 to 5.73; P<0.001) and using medications for diabetes (5.43 percentage points; 95% CI, 1.39 to 9.48; P=0.008). These are substantial increases from the mean rates of diagnosis and medication use in the control group (1.1% and 6.4%, respectively)."

    Detection and treatment of diabetes is an important part of staying healthy.

    " Medicaid coverage resulted in an absolute decrease in the rate of depression of 9.15 percentage points (95% CI, −16.7 to −1.60; P=0.02), representing a relative reduction of 30%"

    This country has an epidemic of untreated mental illness of which depression is a part. Good mental health leads to good physical health.

    "Medicaid coverage led to an increase in the proportion of people who reported that their health was the same or better as compared with their health 1 year previously"

    It didn't make it worse.

    "Medicaid coverage led to a reduction in financial strain from medical costs, according to a number of self-reported measures. In particular, catastrophic expenditures, defined as out-of-pocket medical expenses exceeding 30% of income, were nearly eliminated."

    No comment necessary.

    "the low-income uninsured population in Oregon differs from the overall population in the United States in some respects, such as the proportions of persons who are members of racial and ethnic minority groups."

    As I said, not necessarily a reference to the whole population.

    " We found that insurance led to increased access to and utilization of health care, substantial improvements in mental health, and reductions in financial strain, but we did not observe reductions in measured blood-pressure, cholesterol, or glycated hemoglobin levels."

    I'm thinking those lack of reductions in blood pressure, cholesterol and glycated hemoglobin were diet related, something the poor have a problem with.

    No convincing me yet that the poor, or anyone else, is better off or the same without access to health care. I also agree with Bobby that 2 years does not tell a story but is only the book title.

  2. To Peter 1 below:

    In either system it is the patient who decides to access the system.

    One way he spends his money.
    The other way he spends your money.

    Of course if you wish to remove the decision to seek healthcare from the patient, then you are talking about a different country (for now)

  3. “that is why so many Canadians come here for tx.”

    Myth. Even if Canadians could afford to come here it’s no more than Americans doing medical tourism to other lower cost countries. I went to India for my new hip.

    Paul, your not getting my point on so called below cost reimbursements. As long as there is a higher payer out there, there is no incentive for hospitals to cut costs and work more efficiently – especially in non competitive markets where there are one or two dominate hospital systems. The rest of corporate America does not work like hospitals, the CEO says cut 15% and it’s up to the various managers to meet that goal or be fired. It’s only below cost if you don’t question the cost structure.

    “High deductible plans sponsored by employers usually come with significant contributions to health savings accounts enabling folks to get care without delay when they think they need it.”

    More subsidies. Everyone wants a subsidy, everyone needs a subsidy in this system. Do you get a subsidy from your employer for your health care and to your HSA? The HDHP plans on the exchanges don’t have subsidies for their deductibles – these are the plans lower income people have to buy and these are the plans that make care access difficult the less people earn. As I said, HDHPs don’t recognize need.

    It’s all about income. The richer you are the more you benefit from HDHPs and the more you can contribute to an HSA for that rainy day.

  4. Peter,
    I will try and answer your questions:
    1. I don’t know about hosptial and doc finances in other countries. I do know that one way they control costs by delaying care and witholding care….that is why so many Canadians come here for tx.
    2. Medicare set prices are all over the map…for some procedures they do not cover the cost of care….I do know hospitals increase prices for many private pay procedures and use the extra mark up to cover their departments that lose money (“cross subsidization”)…often due to too low medicaid reimbursement….I have direct exp in this…but the story is too long for here. All this means medical list prices and insurer negotiated prices are a tangled web woven by hospital systems and insurers and govt set reimbursement rates.
    3. I think your comment suggests HDHP plans limit access, delay access etc….I don’t think that is true. High deductible plans sponsored by employers usually come with significant contributions to health savings accounts enabling folks to get care without delay when they think they need it.
    4. I have a high deductible plan linked to a health savings account.
    Let me know if I missed anything or if you think I have this wrong.

  5. “giving uninsured people Medicaid-level access to healthcare did not change physical outcomes.”

    WAY too premature to expect that.

  6. “by reimbursing docs at below cost rates”

    You mean docs and hospitals are going bankrupt in other countries?

    Why is Medicare “below cost”? Why are you accepting that docs and hospitals are charging the “right” price? Do you know what their costs and markups are? You say we should have patients shop for lower prices – wouldn’t then those lower prices also be “below cost”?

    “by limiting patient access, by delaying access, and by denying services patients want.”

    HDHPs, HDHPs, HDHPs.

    Maybe Paul you can tell us how your health costs are covered?

  7. Peter1 said:
    Peter1 says:

    January 31, 2014 at 3:26 am

    “I postulate that when anything is “free” it leads to overutilization”

    Explain single-pay/government controlled systems that do health care for about half of what we do it for and relate that to high deductibles.

    Peter1, please provide your source for assertion that medicare/medicaid costs are 1/2…..I suspect you are using other countries….compairing apples to oranges. But in principle, I agree that government controlled systems can provide care for 1/2 the cost….by reimbursing docs at below cost rates, by limiting patient access, by delaying access, and by denying services patients want. I don’t think that is where US patients and doctors want to go….though certainly there are some who argue for it.

  8. “I postulate that when anything is “free” it leads to overutilization”

    Explain single-pay/government controlled systems that do health care for about half of what we do it for and relate that to high deductibles.

  9. Al yes, to a point I think, but HDHPs are non discriminatory. They act the same for necessary better care as they do for unnecessary worse care. They don’t recognize chronic need or non-competitive markets. They make no distinction between doctors or facilities, and the lower the income the more they act to deny access. They assume the patient is a better doctor than the doctor. They are an admission that we’ve failed to control costs and that providers are unwilling to manage their own costs and greed. They’re an insurance gimmick.

    I may be able accept some nominal deductibles, but the deductibles coming out of the exchanges are almost no better for lower income people than no insurance.

    I’m not sure Oregon, and their particular population/lifestyle mix can be used as a national reference, but if you can link the study I’d be willing to read it.

  10. Peter1,

    Most agree that there is wasteful (and often harmful) utilization of health services of 30% (Rand) to 50% (Nortin Hadler). Hadler’s work emphasizes the harm of this…test false positives leading to excessive testing etc leading many times to iatrogenic illnesses.

    I postulate that when anything is “free” it leads to overutilization….and that when someone has to pay (at least some of the cost) the natural tendency is become a more prudent user….and yes, I think this does apply to poor or wealthy. Some argue this will result in harmful non utilization of health services….but I think that poor and wealthy alike can and will make overall good judgements about when to purchase health services…..but if it is all “free” then over utilization damages (economic waste and negative health consequences) will continue.

    I further postulate that the reduction of health care inflation is due to increased employer use of high deductible plans linked to health savings accounts.

    I don’t assert that the uninsured poor are necessarily healthier…..as there may be lifestyle issues unrelated to their insured/uninsured status. Some uninsured poor do just use the ER and don’t pay the bill…..others exercise judgement about what health care to purchase. I would probably postulate that they may be less likely to have iatrogenic problems due to overtreatment.


  11. actually at the risk of being thrown out of the Democratic party, it is indeed the case that the uninsured are very capable consumers of health care, at least in Oregon, where the study was done that showed no difference in health outcomes once people were insured and healthcare was almost free. (They showed less depression and more piece of mind, but that is not the question here — the question is whether economics can drive smart healthcare choices)

  12. “The evidence is clear that health plans with high deductibles provide a powerful incentive for patients to be prudent in their use of health care services.”

    Then the uninsured poor must be the most healthy due to the cost impediment of utilizing the “system”.

  13. Please remember, physician reimbursement is pretty much controlled by CMS, and rates or reimbursement for doctor’s medical services have not changed significantly. Many predict the exchanges will try to underpay even CMS rates to lower overall costs. That leaves physicians with seeing more patients to make up for the losses, which leaves less time per patient and less time for the unweildy documentation needed to get paid.
    Add to that the looming ICD-10, which I doubt anyone is adequately prepared for, and big trouble is in the making.
    Physicians are most certainly not the ones causing the high costs.

  14. That may have been the case in recent State of the Union addresses, but this time was different — Obama spent a big chunk of his speech (about five minutes) touting the ACA. That’s basically twice as long as last year, and 10 times as long as two years ago, when Obama barely mentioned his law during all the controversy in 2012.

  15. On OOP costs and HDHPs, if you look at Exhibit 1, page 68:

    2010 = ~12%
    2011= ~ 12%
    2012 = ~12%

    Year over year growth 3.7% +/- for the same period.

    What am I missing? Where does more skin in the game as root cause play here?


  16. Excellent post Vik Khanna! Excellent article Leah Binder!

    The evidence is clear that health plans with high deductibles provide a powerful incentive for patients to be prudent in their use of health care services. The voluntary adoption of these plans (usually accompanied with health savings accounts) by employers and individuals over the past five years is why overall health care cost growth has slowed (not the recession per se or the false claims of the administration that somehow this was due to Obamacare).

    Somewhere in the administration there was a clever person who saw that high deductible plans are the way to “bend the cost curve” and built that into many of the exchange offerings. While this is a positive feature for health care policy….it was already happening before the adoption and implementation of the ACA…..all the disruption, coercion and bureaucrat empowerment built into the ACA will likely erase the benefits of high deductibles incentivizing patients to be active and prudent consumers of health care.

  17. That increase in hospitalizations is a mystery. I had heard anecdotally that hospitalizations were down.

    Not so for doctor visits. I could ascribe the increase in physician utilization to many more preventive care visits, as the Truven Health Analytics report shows. As part of wellness programs, employees are either getting paid to get checkups or fined if they don’t, Either way, that’s a lot more doctor visits, and, oh, by the way, according to all the literature, going to the doctor when you’re not sick is not a good idea.

  18. @Leah –

    Rightly or wrongly, they’re trying to refocus the conversation AWAY from Healthcare. As they see it, they’ve been taking hit after hit on healthcare for the better part of the last three years It’s time for closure. This is standard Beltway thinking. And the kind of thing we’ve seen in every state of the union address in recent decades. (I’m trying to think of exceptions. I can’t think of any.) If you’re one of those who think the healthcare reforms are turning things around and the criticism we’re hearing is largely political bullshit, it’s the wrong thing to do. Too bad. From a political consultant’s point of view, it’s exactly the right thing to do. Why? Because it works every time. At least, if your goal is to survive politically …

  19. Leah, your analysis is right on point, especially with its assertion that American consumers themselves — with their horrendous personal health habits and striking ignorance about health management generally — are the root cause of the problem. The culture has been sucker punched by a medical care industry (inclusive of doctors, hospitals, and health plans) that believes good health begins the clinic when, in reality, that is often where good health and good sense go to disappear. Sort of like what happens to rational thoughts that enter a politician’s brain.

    This president won’t mention the slowdown in medical care spending not only because he’s not responsible for it, but also because, as health economists writing in both Health Affairs and the NEJM noted, the slowdown is very likely temporary. As coverage expands and the economy continues its recovery (such as it is), spending is very likely to spike again. Covering more people and telling them to get useless and unnecessary “preventive” care is a recipe for a fiscal and clinical trainwreck. The President won’t mention that either and it isn’t even remotely conceivable that he’ll accept responsibility for it.

    Our medical care apparatus is, in fact, led by an army of arrogant, small-minded, entitlement-mentality apparatchiks, whose only goals are to “optimize payer mix” and “maximize reimbursement” to compensate for their obliviousness to the actual needs of their communities. It’s all they know how to do because of a 50-year legacy of American consumers, taxpayers, and businesses essentially functioning as an ATM machine for the medical care industry.