Healthcare spending slows: But why?

The apparent slowdown of the growth of healthcare spending has been noted by many in the healthcare industry, the policy world and economists. But what is causing it and how long it will last is unknown.

The White House weighed in late in July with a blog by Alan Krueger, chairman of the Council of Economic Advisers. In his post, he highlighted the evidence indicating healthcare cost growth has slowed and the ACA’s role in that slow down.

Among the evidence he cited:

• Recent prices for personal consumption expenditures (PCE) on healthcare goods and services rose at its slowest rate in nearly 50 years, at 1.1 percent over the 12 months ending in May.
• The Congressional Budget Office (CBO) expects combined Medicare and Medicaid spending to be about $200 billion lower in 2020 than what it forecast three years ago.
• From 2009 to 2011, nationwide real per capita health expenditures grew at the slowest pace since reporting began in 1960.
• In 2012, premium growth for employer-sponsored insurance was at its lowest rate – 3 percent – since the Medical Expenditure Panel Survey started in 1996.

Aiding in the slowing of healthcare cost growth, he wrote, are Affordable Care Act initiatives such as:

• The Partnership for Patients, which aims to reduce hospital complications and readmissions. Since 2011, the Medicare readmission rate has declined below its historical average, he noted.
• Accountable care organizations (ACOs), through which Medicare shares savings with provider partners that deliver quality care.

Economists taking part in a July 30 forum on healthcare spending sponsored by the Altarum Institute, a nonprofit healthcare research and consulting organization, pointed to other factors impacting the slowing growth of healthcare spending.

The recession is certainly one cause, said Gene Steuerle, an economist at the Urban Institute and former senior treasury tax official for President George H.W. Bush. He said that when economic growth is slower, healthcare spending follows and vice versa. “If we don’t change policy, spending growth will return,” he said.

But David Cutler, economics professor at Harvard University, argued that while the recession accounted for about one third of the slowdown in medical spending, structural changes – although it is unclear to what degree and for how much longer – are also dampening healthcare spending.

Development of new technologies and products to treat patients, which had previously been a key cost driver, has decelerated. “There hasn’t been another Lipitor, and it’s off patent, and imaging growth has slowed, new surgical devices are slowing down,” he said. “There doesn’t seem to be in the immediate pipeline things that will reverse this trend.”

Cost-sharing has also increased enormously, with about 20 percent of covered workers enrolled in private high deductible insurance plans, he said. A typical individual policy now has a $1,000 deductible and a family policy two to three times that. 

“Many people are effectively acting as if they were uninsured – postponing elective services and images, cutting out anything that wasn’t essential and even some things that were essential being postponed,” Cutler said. “This will almost certainly continue.”

[See also: Doctor integration leads to higher costs]

Over the last decade household incomes have declined, added John Holahan, fellow at the Urban Institute’s Health Policy Center. “The country became poorer,” he said, noting that employer-sponsored insurance also decreased.

And no one should discount the impact a changing system is having. Providers are responding to incentives and taking steps to become more efficient and hospitals are reducing their readmission rates and the cost per admission, said Holahan. Payers have reduced drug spending, with tiered formularies and more generics use.

“Nobody knows for sure, but I think if you look at the weight of what’s going on, another way of saying it is, the world would have to change for costs to go up again,” Cutler concluded.

[See also: Why the drop in US healthcare spending?]