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January 7, 2014

U.S. marks four straight years of slowing health costs

WASHINGTON — Even as his health care law divided the nation, President Barack Obama’s first term produced historically low growth in health costs, government experts said in a new report Monday.

While the White House sees hard-won vindication, it’s too early to say if the four-year trend that continued through 2012 is a lasting turnaround that Obama can claim as part of his legacy.

For the second year in a row, the U.S. economy grew faster in 2012 than did national health care spending, according to nonpartisan economic experts at the Centers for Medicare and Medicaid Services.

That’s an important statistic. In most years, health care spending grows more rapidly than the economy, like bills that rise faster than your paycheck. That cost pressure steadily undermines employer insurance as well as government programs like Medicare and Medicaid. But the pattern slowed starting in 2009, and then appears to have reversed ever so slightly and tenuously.

“Have we turned the corner in a sustainable way? That’s still an open question,” said economist Robert Reischauer, who serves as a public trustee overseeing Medicare and Social Security financing. “But I am more optimistic than I have ever been that fundamental changes are under way.” For example, even though baby boomers are joining Medicare in record numbers, that program’s costs are basically stable when measured on a per-patient basis, Reischauer noted.

Nonetheless, America still spends a whole lot. Monday’s report found that the nation’s health care tab reached $2.8 trillion in 2012, the latest year available. Health care accounted for 17.2 percent of the economy, down from 17.3 percent in 2011.

Total spending averaged $8,915 for every man, woman and child, well above the level in other advanced economies. But more spending doesn’t equate to better health. By many health measures, other countries are ahead.

Also, the per-capita dollar amount doesn’t tell the full story. In any given year, most of the spending goes for the sickest patients, a small fraction of the population.

The report said Obama’s health care law had only had a “minimal impact” on overall spending. It contributed less than 0.1 percent to rising costs from 2010-2012, the authors said. That will change this year when the law’s big coverage expansion for the uninsured is expected to increase U.S. health spending by about 6 percent.

Whether that starts a return to the old pattern of faster growth remains to be seen. The White House does not believe that will happen.

“There will be a temporary, one-year increase as those folks are brought into the system, but there is very reason to believe that the trend of slowing growth rates per beneficiary will continue into the future,” said Jason Furman, chairman of the president’s Council of Economic Advisers.

“It’s increasingly clear as each year of data comes out and the slowdown persists that there is also something structural going on, and the Affordable Care Act is contributing,” he added.

The report said it’s too early to discern where things might be headed next. In the past, health care spending has stabilized two to three years after an economic recession, only to resume its upward track as consumers regain confidence.

More evidence is needed before concluding that there’s been a structural break in the relationship between the health sector and the overall economy, the authors said in an article published in the journal Health Affairs.

Below the topline figures, spending grew faster in some areas and more slowly in others, making it more difficult to piece the puzzle together.

Spending for hospital care and doctors’ services grew more rapidly.

So did out-of-pocket spending by individuals. That reflects the trend of employers increasing annual deductibles and copayments to shift a greater share of medical costs directly on to employees and their families.

Spending on prescription drugs barely increased, reflecting an unusual circumstance in which patent protection expired for major drugs like Lipitor, Plavix and Singulair. Generic drugs accounted for an ever-increasing share of prescriptions.

Medicare spending grew more slowly, reflecting a one-time cut in payments to nursing homes and some of the spending reductions in Obama’s health care law. Spending per Medicare recipient grew by 0.7 percent in 2012, down from 2.5 percent in 2011.

Spending for private insurance also grew more slowly, reflecting the shift to high-deductible plans that offer lower premiums.

Part of the good news for 2012 reflected a statistical revision that the Commerce Department adopted last year, resulting in a more robust estimate of Gross Domestic Product. Without that change, health care spending would have approached 18 percent of the economy. The report’s authors said that they updated statistics going back to the 1960s to account for the new GDP methodology.

No matter which party controls the White House, it would be good for the country to get health care costs under control, said economist Douglas Holtz-Eakin, a former Congressional Budget Office director and an adviser to Republicans. He’s not convinced.

“In the 1990s we had four straight years of very low growth, and then it disappeared,” said Holtz-Eakin.

“I think the jury is still out on where we end up,” he added. “But it’s a very interesting set of data, and one that everybody is staring at.”

 

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