The annual report of from the actuaries over at the Centers for Medicare and Medicaid Services (CMS) is out for 2012 and, for the fourth year running, the news is surprisingly good.
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Total healthcare spending in 2012 came in at $2.79 trillion—up just 3.7 percent over the previous year and continuing a four-year trend of significantly reducing the amount of growth in annual healthcare expenditures.
By way of comparison, before the recent recession, we were averaging annual increases in health care spending of over 7 percent during the calendar years 2000-2008.
The current numbers represent the slowest rate of growth since the government began tracking the data in 1960.
Not only were the numbers terrific on an historic basis but, thanks to a growing economy combined with lower healthcare spending, what we shell out for health care actually decreased as a percentage of the total economy—down to 17.2 percent from 17.3 percent—for the first time since President Clinton inhabited the White House. While this may not appear to be a significant drop, the mere fact that healthcare spending as a percentage of GDP is dropping at all is a pretty big deal.
Of course, along with this good news come the questions seeking to understand why this happening and whether or not we can expect this positive trend to continue.
Both questions are nearly impossible to answer with much confidence.
While the White House and political supporters of the Affordable Care Act argue that the law has played a significant role in bending the cost curve in healthcare (one of the primary objectives of the Affordable Care Act), others believe that the ACA has played little—if any—part in slowing the growth of health related expenditures.
The points in favor of crediting Obamacare as a significant factor in the improved spending picture are ably put forward by Harvard economics professor and one time senior healthcare advisor to the 2008 Obama campaign, David Cutler, in his op-ed piece for the Washington Post.
Professor Cutler lists the following elements of the law as playing a major role in bringing spending increases down:
- The ACA provisions that base payments on the value of medical care rather than the volume of care. More providers are now paid flat fees for an incoming patient rather than their being paid for the number of services and tests provided to that patient. This causes providers to be efficient in their care and avoid unnecessary tests and procedures.
- The increased number of Accountable Care Organizations which are designed to make providers more accountable for the cost and quality of the care provided. Cutler points out that there are now some 500 ACO organizations throughout the nation, half of which are designed for Medicare patients. Writes Cutler, “Ten percent of Medicare beneficiaries are in ACOs, and many others are in payment systems that put together all reimbursements for a procedure, such as a hip replacement or cardiac stent insertion. Leaders of medical systems routinely report that they expect, and are preparing for, a move to value-based payments.”
- A decline in hospital re-admissions as a result of a provision in the ACA that does not permit a hospital to bill Medicare when a patient returns within 30 days of discharge. While these readmissions used to bring in substantial money to hospitals, and cost Medicare accordingly, Cutler reports that readmissions are down 10 percent since 2011.
Note that all of these provisions of the ACA have now been in effect for a few years.
Of course, those less prepared to credit Obamacare with the positive data are more likely to point to the fact that the sluggish economy and high unemployment are primarily responsible for putting a dent in the cost curve. Simply put, when people don’t have money to spend on healthcare, the total amount spent throughout the nation will decrease.
There is no denying that the poor economy has likely played the starring role in the declining increase in healthcare spending over the past few years.
Indeed, the new report issued by the CMS includes a section that suggests that the ACA’s impact on the slowing growth in spending is small, noting that Obamacare has had “minimal impact on aggregate health spending through 2012.” The report does, however, also note that certain provisions in the law have helped to bring down costs on some of the “sub-components of national health expenditures.”
While it will be a number of years before anyone truly knows the impact of Obamacare—and its ability to continue the positive trend as the economy improves and ceases to be a key driver of lowered expenditures in health—there are a few additional developments that also deserve a piece of the credit.
The past few years have seen the arrival of what is often referred to as the ‘patent cliff’ in pharmaceuticals where many of the top selling drugs in the nation lost their patent protection and became available at a much lower price, resulting in fewer dollars being spent for often prescribed medications. Considering that recent years have not seen much in the way of new drugs designed to improve upon and take the place of the now out-of-patent pharmaceuticals, we can expect the lowered expenditures for prescription drugs to stick around for awhile.
It is also worth noting that while many are complaining about the increased deductibles in health insurance policies as a result of Obamacare, conservatives have long argued that raising the amount of money a customer must pay before the insurance company takes over places the patient in a position of having more skin in the game. Certainly, people are less likely to allow providers to spend quite so freely when they are picking up the tab rather than the insurance company.
Whatever the reason(s) for the decline in the healthcare cost curve, we should celebrate the good news as we keep a keen eye on the causes for this good fortune.
While objective analysis would lead us to believe that the combination of all the features discussed above have played a part in holding down the rate of annual increases, in varying degrees, we must acknowledge that we will be increasingly dependent upon the experiments set out in Obamacare to continue this important trend as the economy continues to improve.
Whether or not the Affordable Care Act has played a significant role in lowering the increases in health care spending to date, it is difficult to deny that the early data on the law’s impact is promising.
For that reason, let’s hope that the critics will keep the data in mind as they pursue their political agenda as it would be a shame to return to the days of 7 percent annual increases in the cost of care just to aid the election prospects of professional politicians.
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