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National Health Expenditures Continue to Accelerate in 2015. What Does That Mean?

In 2009 a youthful Barack Obama addressed a joint session of congress on health care on a cold fall evening.  The country was still recovering from the great financial crisis, and the new President was now attempting to turn the nation’s eye to health care. As he had done many times before, Obama spoke powerfully of the tragedy of millions of citizens with ‘no access’ to health care, but spoke practically of the unsustainable and untenable economics of health care.

Finally, our health care system is placing an unsustainable burden on taxpayers.  When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid.  If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined.  Put simply, our health care problem is our deficit problem.  Nothing else even comes close.  Nothing else.  (Applause.)

Now, these are the facts.  Nobody disputes them.  We know we must reform this system.  The question is how. “

These were the indisputable facts, he said.  ‘Nobody disputes them’.

With this argument the groundwork was set to completely change healthcare as we knew it.  What choice did we have, after all?  We we were all heading off of a cliff unless something was done.  And something had to be done right now.  The only problem was that we actually weren’t rushing off of some fiscal health care cliff in 2009.  We were actually in the throes of a great inexplicable slow down in health care spending that extended back to 2001.  The years from 2009 to 2013 actually represent the slowest growth in healthcare spending… ever.  Annual growth rates that at one point had averaged almost 11% in 1989, barely broke the 4% mark between 2009 and 2013.  Even more importantly, annual health care costs were rising slightly slower than the annual increase in GDP, and so, for a brief period in time, the health care piece of the national pie actually did not increase.

That was until 2014 when the Affordable Care Act started enrolling patients.  Directly as a result of the ACA (CMS conclusions – not mine), the annual growth rate in health expenditures went from 2.9% in 2013 to 5.3% in 2014.  CMS recently released the 2015 numbers, and they are worse.  Annual spending on health went up to 5.8% in 2015, and continued to outpace GDP growth (Figure 1).  Healthcare costs are, once again, on the rise and are clearly accelerating.

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Figure 1. National Health Expenditure growth rate

The very program instituted to solve the problem of cost, succeeded in bending up the national health care cost curve.  Some choose to debate this point, but the data here is clear.  Federal Health expenditures in 2014 and 2015 increased dramatically relative to all other expenditures.  (Figure 2).  It could certainly be coincidence that federal expenditures rose rapidly the same year millions of Americans gained health care coverage, but I doubt it.

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Figure 2. National Health Expenditures by Sponsor

Politics being politics, the most transparent administration in history said this about this data dump from CMS.

Andy Slavitt, the director of CMS, is technically correct because he’s picked out per-enrollee Medicare spending which continues to increase at historically low levels (1.7% in 2015).  Conveniently ignored is annual growth in private health insurance cost (7.2%) that is almost double the rate of growth in 2009, and growth in Medicaid – both expanding dramatically after 2014 due to expanded enrollment with Obamacare.  The expansion in Medicaid does not come cheap. In 2015 Medicaid accounts for $545 billion in spending and grew at an alarming 11.6% in 2014, slowing down only slightly to 9.7% in 2015. (Table 1)

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Table 1.

For all this, the uninsured share of the population dropped by a whopping 5%.  About half of the coverage came via the private marketplace, and the other half came via Medicaid expansion.  While there is no doubt that some benefited greatly – specifically those uninsured with pre-existing medical conditions – millions of citizens found themselves paying a pretty penny for insurance that was expensive to use.  Total out-of-pocket spending for individuals which includes co-pays, deductibles, co-insurance and spending on non-covered services reached an otherworldly 338 billion dollars as more citizens were guided to plans with greater cost ‘sharing’.  While it is unfair to compare spending in developing countries for a variety of reasons, it provides some measure of scale to understand that India – a nation of 1.2 billion people – spent a total of 96.3 billion dollars on health care in 2013.

Six  years have passed since the ‘affordable’ care act passed.  Those responsible for this new world order are now strident partisans striving valiantly to show their value. Unfortunately, finding value in this new world is as hard as finding the Emperor’s new clothes.  The only indisputable fact is that eight years after candidate Obama promised efficient, sustainable healthcare, we now spend more than ever on health care at an accelerating pace. A course correction is desperately needed.  One hopes the new administration will be up to the task.

Anish Koka is a cardiologist based in Philadelphia.

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18 replies »

  1. “I’m as married to HSAs as I was to ACOs.”

    Anish, it is fine to have an open mind, but HSA’s have shown considerable success while ACO’s have failed miserably. Why have you chosen such different people to be married to? 🙂

  2. Geez….how can such a discussion ignore the large Rand study. Here is a quote from Rand: “Studying more than 800,000 families from across the United States, researchers found that when people shifted into health insurance plans with high deductibles, their health spending dropped an average of 14 percent when compared to families in health plans with lower deductibles.”
    Here is the link:
    http://www.rand.org/news/press/2011/03/25.html

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  4. I’m mostly agnostic to health care policy. I’ll take whatever works- I voted for obama and his health care Plan twice..

    1. You’re right . I was being conservative – hc costs are down since the early 90’s, reached a nadir in 2009-2013. I’m not just looking at absolute hc spending though I think it’s important– but not as important as growth relative to GDP- which is why I picked this particular graph to show. In 2014 and 2015, driven by ACA enrollment – costs relative to GDP went up. My point- if the ACA emerged
    To solve the nations cost problem, there’s clear evidence
    It didn’t. I am thus open to other approaches, and voted accordingly

    2. The numbers reflect end of 2015. And I’ve provided the relevant table. Uninsured rates dropped ~5%. This was mostly due to Medicaid expansion and subsidies. Out of pocket costs
    also went up significantly. Was that money spent in making us healthier? The Oregon Medicaid expansion And reams of Data would suggest that just giving folks Medicaid doesn’t result in hard outcomes improving, and doesn’t even result in lower ER utilization.

    3. Sure , let’s look at per capita spending, but at the end of the day one has to pay the bills when they come due. And it’s not enough to look at percapita spendin, but outcomes from that spending. Look it should be fair 8 yrs later to evaluate the cost curve – obama owns it. Tk ear his admin say the opposite of what’s happening is remarkable.

    4. I shouldn’t have used India, and I said as much. It’s just a stunning difference.

    5. Still think of myself as a liberal, believe in universal access to healthcare- I’m intrigued by the opportunity for reductions in the unit price of healthcare my direct primary care (not concierge!) colleagues are effecting by eliminating the insurance middle man. HSA’s seem like a way to effect this- and I’m interested to see effective models.

    I’m as married to HSAs as I was to ACOs. The current models simply don’t work.

  5. “At the K-12 level, sensible reforms are most often thwarted by powerful teachers unions”

    I wonder who “thwarts” sensible reforms in health car spending? Education spending is about wages, class size and buildings – what do you want to cut.?

    “Of course schools are poor, infrastructure bad, etc.. ”

    Not in all districts. Have a look at wealthy (white) high property tax districts. When racism drove whites from inner cities they took their education funding with them – and preferred spending on prisons.

    We don’t have a funding problem, we have a distribution problem.

  6. 1) The slowdown in health care spending really goes back to the 90s. (Look at Fuchs paper.) Just looking at the absolute rate of increase, which looks like what you are doing is somewhat akin to looking at nominal dollars when talking about money. When you look at NHE (National Health Expenditures) compared with growth in GDP, a more meaningful metric, you see a slowdown since the early 90s, with a brief uptick in the early 2000s before coming back down.

    http://www.nejm.org/doi/full/10.1056/NEJMp1305298#t=article

    2) Total health care spending is up, but so is the number of people covered. The WSJ using latest data (they live in your side of the bubble) notes that the rate of uninsurance is down to 8.6%. That is actually a drop of about 8% (or about 50% depending on your preference). You could cut NHE by not insuring those people. Not sure that is what most of us want.

    http://www.wsj.com/articles/percentage-of-uninsured-historically-low-1473220802

    3) While looking at total spending has some utility, I think you should also look at spending per person. If, in fact, your goal is to cut costs AND insure everyone, that is a metric you should be following.

    4) Using India as a measure of scale seems a bit bizarre. Why not compare spending in other countries with first world medicine and outcomes?

    5) One of the mainstays of conservative/libertarian approaches to controlling health care costs has been some variation of a high deductible/catastrophic insurance plan. “Skin in the game” is the catch phrase. Should we assume you will reject these kinds of plans as they will increase out of pocket spending?

  7. The only way to spin the last 2 years in a positive light is to talk about what healthcare spending could have been. No model predicted lower cost growth 2009-2013, yet it was happening. And there’s little evidence from the medicaid oregon expansion that we’re improving hard outcomes. (though pts. feel better when they have health insurance) The famous graph comparing other OECD countries per capita health care spending and Life Expectancy? This is how its formed!.

  8. Agree with barry, it sounds good… but issue is bang for buck in education as well!

    In philadelphia – annual budget for school is $2.8 billion/year. works out to like 20k/student. Of course schools are poor, infrastructure bad, etc.. Where’s money going?

  9. Peter – the trend for cost slowdowns in healthcare pre-date 2009. Deceleration appears to start in 2001, and reached its nadir in 2009-2013. 2009-2013, also reflects the economy rebounding – as seen by the GDP trace. You’re absolutely right – simply giving access to healthcare and not doing anything about the unit price of HC was a dumb idea. Saddling folks with expensive plans – pt responsibility in 2015 – $338 billion.. So a narrow band of folks with pre-existing conditions benefited. Simply asking if this is the best way to do things. It would seem not. I didn’t suggest, or imply pricing people out of the market as a solution.

  10. “The years from 2009 to 2013 actually represent the slowest growth in healthcare spending… ever.”

    The great mortgage fraud recession when a lot of people could not afford elective care? Is this the way you want to control health care spending?

    “That was until 2014 when the Affordable Care Act started enrolling patients. Directly as a result of the ACA (CMS conclusions – not mine), the annual growth rate in health expenditures went from 2.9% in 2013 to 5.3% in 2014.”

    Who’s growth rate, those who could finally afford care (at exorbitant prices) or the national rate of usage which reflects those same exorbitant prices?

    So it seems the solution to getting our health care expenditures down is to price millions of people out of the market. Only in America.

  11. My NP friend tells me that drug rehab is most likely to be successful if the addict not only wants to get clean but is also prepared to drop their drug using friends and even change their phone number to minimize potential contact with known drug users. It’s almost like going into the witness protection program. Maybe addicts shouldn’t be sent to or accepted by rehab centers unless they are prepared to do that upon completion of the program.

    A little jail time like a few days to a couple of weeks might help motivate them to kick their habit as well. I don’t think lengthy prison sentences are either helpful or appropriate though as long as no other crimes were committed like assault, robbery, burglary, selling drugs, etc. to get money to buy drugs.

  12. Admittedly it’s hard to know when one hits bottom, but the tendency is for both parents and the government to enable the abuser. Bottom is a lot lower than what the onlooker perceives. I can’t provide you a formula. I was frequently asked by patients what to do with their addicted children, but that advise was dependent upon circumstances. There are a lot of centers that will take people’s money, but the results are horrid.

  13. How do you or the addict know when they hit bottom? Do they say, I hit bottom and am ready for rehab now? I doubt it. Also, how many times does hitting bottom mean a fatal drug overdose? That said, an NP friend tells me that drug rehab is only fully successful about 10% of the time so maybe the state of the art still has a lot of room for improvement.

  14. “That shortfall in spending pretty good news.”

    It depends upon how one looks at it for in the years between we had a terrible recession that might have been partially responsible for the decrease in costs leading to those estimates. A rather drastic way of lowering healthcare costs, so I personally wouldn’t feel so good about what we have seen.

    “I’m also less alarmed about healthcare spending increasing because more people have coverage, especially people with pre-existing conditions.”

    WE really haven’t insured that many more people though we did put quite a few on Medicaid and paid the bills of others. Unfortunatley the rest were placed in a quandry. How should they pay for their added costs ? Skip the kids college fund or get still another job? …And what did these people that benefited get? Insurance. I wonder how much healthcare tagged along with the insurance.

    “divert more drug abusers into drug rehab and other treatment instead of sending them to prison, we will spend more on healthcare but less on incarceration. On balance, that’s a good thing in my view if the dollars roughly offset.”

    To date we have done a lousy job with drug rehab because the same people return over and over again and if they don’t return its because they ended up in jail. From experience with my own patients the sooner they hit bottom the better for them and society, but we have a tendency of investing huge amounts of money before bottom is hit and then little is left when the indiviidual is most remedial to treatment.

  15. It’s funny you should mention education. That’s the one area of the economy, both K-12 and college level, besides healthcare where costs, aka investment, increased faster than the growth rate of the economy for decades. At the K-12 level, sensible reforms are most often thwarted by powerful teachers unions who see education spending as more about jobs for their members than education for the students. As the late former AFT president, Albert Shanker, once famously said “When students start paying union dues, then I’ll represent students.”

  16. The cost of our nation’s healthcare continues to increase faster than our nation’s economy. The excess cost, annually worsening as compared to ALL of the other developed nation’s of the world, is now the largest contributor to our annual deficit of the Federal government (60% of it in 2015). In spite of our current Presidential stock market ratings, its likely that there will be a recession in about two years. The regulatory drag on our Nation’s healthcare will worsen its cost, then aggravated further by the recession. The effect on the front-lines of healthcare will be disheartening. The high deductible character of insurance, will likely degrade it to nothing more than urgent care centers. To verify my view of this, look up Henry Aaron at the Brookings Institute, our nation’s expert on the economic effect of the healthcare industry on our national economy.

    One current attribute of the cost of our nation’s healthcare is its effect on our nation’s investment in education. Many would argue that the decreasing investment in education is a major cause of our nation’s low economic growth.

  17. I remember back in 2005 insurance executives and other healthcare system experts emphatically predicting that total healthcare spending in the U.S. would reach 20% of GDP by 2015. If that prediction came true, we would have spent roughly $400 billion more than we actually spent. That shortfall in spending pretty good news.

    I’m also less alarmed about healthcare spending increasing because more people have coverage, especially people with pre-existing conditions. The enrollment growth will likely run its course soon even if the ACA remains in place.

    Separately, if, as a national strategy, we divert more drug abusers into drug rehab and other treatment instead of sending them to prison, we will spend more on healthcare but less on incarceration. On balance, that’s a good thing in my view if the dollars roughly offset.

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