qotd: What do health care cost trends mean for us?

Health Affairs
September 2014
National Health Expenditure Projections, 2013–23: Faster Growth Expected
With Expanded Coverage And Improving Economy
By Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison,
Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz
and John A. Poisal (all affiliated with CMS Office of the Actuary)

Abstract

In 2013 health spending growth is expected to have remained slow, at 3.6
percent, as a result of the sluggish economic recovery, the effects of
sequestration, and continued increases in private health insurance
cost-sharing requirements. The combined effects of the Affordable Care
Act's coverage expansions, faster economic growth, and population aging
are expected to fuel health spending growth this year and thereafter
(5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the
average rate of increase through 2023 is projected to be slower than the
7.2 percent average growth experienced during 1990–2008. Because health
spending is projected to grow 1.1 percentage points faster than the
average economic growth during 2013–23, the health share of the gross
domestic product is expected to rise from 17.2 percent in 2012 to 19.3
percent in 2023.

Model And Assumptions

These projections remain subject to substantial uncertainty and reflect
the variable nature of future economic trends, as exemplified by the
prolonged and comparatively sluggish nature of the recovery from the
2007–09 recession. In addition, the United States has experienced only
the initial effects of the ACA's coverage expansions. The impacts of
reform on the behavior of consumers, insurers, employers, and providers
will continue to unfold throughout the projection period and beyond. In
particular, the supply-side effects of the ACA remain highly speculative
and are not included in these estimates.

Conclusion

Since the end of the Great Recession in 2009, economic growth in the
United States, as measured by GDP, has remained slow: just 3.9 percent
per year, on average, which is well below the average rate experienced
in the four years following the three previous recessions. The fact that
recent health spending increases have not returned to their prerecession
rates is consistent with the long-standing relationship between overall
economic growth and health spending growth.

Growth rates for both the economy and health spending have been slow.
However, the health share of GDP has remained relatively constant since
2009 and is expected to be 17.2 percent in 2013. Contributing to the
stable share in 2013 are continued low use of medical care and
provisions of both sequestration and health reform that constrain
payments to Medicare providers.

The period in which health care has accounted for a stable share of
economic output is projected to end in 2014, primarily because of the
coverage expansions of the ACA. It is anticipated that by 2017, once the
mostly one-time transition effects of expanded coverage have fully
transpired, the health share of GDP will increase, albeit at a slower
rate than its historical average, as an improving economy and the aging
of the baby-boom generation lead to faster health spending growth.

http://content.healthaffairs.org/content/early/2014/08/27/hlthaff.2014.0560.abstract

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Comment by Don McCanne

When people ask how much the United States is spending on health care,
it is the numbers from this report that are usually cited. So how much
are we spending now, and what will that spending grow to a decade from now?

Projected spending for 2014:

National health expenditures (NHE): $3.057 trillion
NHE per capita: $17,354
NHE as a percent of GDP: 17.6%

Projected spending for 2023:

National Health expenditures (NHE): $5.159 trillion
NHE per capita: $26,691
NHE as a percent of GDP: 19.3%

With the Affordable Care Act (ACA) the changes in spending represent not
only the usual factors that the actuaries consider each year, they also
include the changes in coverage due to the establishment of the
insurance exchanges and the expansion of Medicaid, along with other
direct and indirect results of implementing ACA. Considering all of the
variables, the actuaries once again have done a commendable job in
arriving at their estimates.

Although the authors do make it clear that there is substantial
uncertainty in these predictions, especially due to the variable nature
of economic trends, there is one aspect that should raise our concern.
Their results depend on the prediction that there will be faster growth
in disposable personal income. Yet when you read the work of Thomas
Piketty, Emmanuel Saez, Joseph Stiglitz, Robert Reich and others, there
is a very real concern that, though the economy may continue to reward
the rentiers generously, personal incomes for workers may well remain
stagnant. Many will have no discretionary income and may have to
continue to cut into the portions of their budgets that pay for
essential needs.

This will be of particular concern because of the increases in
out-of-pocket spending that will be required as more people are shifted
into lower actuarial value plans with higher cost sharing, especially
higher deductibles. Many policy experts believe that a significant
portion of the recent slowing in health care spending has been due to
the high out-of-pocket costs for upfront health care, causing patients
to decline care that they should have. This is not the way we should be
trying to put a lid on health care spending. People will suffer and some
will die simply because of their perception that health care is
personally not affordable because of the high upfront costs.

Another important consideration is that predictions of future health
care spending are dependent not only on expansion of health care
coverage and on the other variables, but they also are dependent on the
baseline costs of the existing health care financing system. As we all
know, the administratively complex multi-payer system that we have in
the United States is the most expensive model of financing health care
with its tremendous built in waste. If we were to change to an efficient
single payer system, not only would everyone have affordable access to
health care, we would not be talking about a trend in national health
expenditures that in a decade will consume almost one-fifth of our gross
domestic product.