Health spending growth through 2013 is expected to remain slow—3.8 percent—because of the sluggish economic recovery, continued increases in cost-sharing requirements for the privately insured and slow growth for public programs, according to federal actuaries and economists who published their projections in the September issue of Health Affairs.
They note, however, that “improving economic conditions, combined with the coverage expansions in the Affordable Care Act and the aging of the population” will drive faster projected growth in health spending in 2014 and beyond. Expected growth for 2014 is 6.1 percent, with an average projected growth of 6.2 percent per year thereafter. If you factor in the slower growth rate in 2012 and 2013, the average annual growth rate is 5.8 percent for 2012-2022. (“National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands And Economy Improves,” Health Affairs, September 2013.)
For reference, the average annual growth in spending between 1990 and 2006 was 7.4 percent.
The 5.8 percent average rate of spending growth is 1.0 percentage point faster than the projected average annual economic growth during the period. As a result, the share of GDP devoted to healthcare is projected to rise from 17.9 percent in 2012 to roughly 20 percent of GDP by 2022. (“National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands And Economy Improves,” Health Affairs, September 2013.)
As has been reported in earlier blogs, the actuaries dispute that health reform has been largely responsible for the slowing of the increase in health spending. In their report they noted there has been no evidence nor have there been credible projections that health reform will influence the way doctors, hospitals and others provide care, nor will the way they provide care significantly affect health spending. They noted they expect only “modest” savings from the changes put forth in the health reform law. (“Health Spending Over The Coming Decade Expected To Exceed Economic Growth,” Kaiser Health News, September 18, 2013)
The actuaries also said they are skeptical that the nation has entered a new era of lower health spending, a case that has been made by the Obama administration and many prominent economists. The report notes health spending will rise faster than economic growth as the business climate improves.
Modern Healthcare noted that soft spending growth has “provoked debate over how much of the slowdown could be a result of stagnant wages and unemployment and what might be more efficient care in response to new public policy.” It quoted
David Cutler, an economist at Harvard University: “The actuaries do not think the world has changed in any fundamental way. This puts them somewhat at odds with a number of recent papers.” Recent research by Cutler attributed about one-third of the slowdown to the economy. Greater efficiency, fewer brand name drugs and higher cost sharing for patients with private insurance drove the remaining 55 percent. (“Reform Update: Health spending for 2013 will be sluggish but will pick up in 2014,” ModernHealthcare.com, September 18, 2013)
Next year the actuaries expect about 11 million uninsured people will gain coverage through the new private insurance marketplaces and the expansion of Medicaid that starts under health reform. Most of the newly insured will be relatively young and healthy, the actuaries predict, so the 6.1 percent rise in spending will mostly result from increased use of physician/outpatient visits and higher prescription drug use rather than hospital/inpatient services. (“Health Spending Over The Coming Decade Expected To Exceed Economic Growth,” Kaiser Health News, September 18, 2013)
To read the Health Affairs report, click here.
iProtean subscribers, a new advanced Finance course—Making Difficult Decisions about Programs and Services, Part One—will be published in your course library in October. Marian Jennings, Lisa Goldstein and Nathan Kaufman discuss an objective process for evaluating program viability. Ms. Jennings describes using a portfolio approach when evaluating whether to expand, maintain, enhance, downsize or eliminate programs. She begins with asking four core questions:
- Is there a real community need for the service
- What is the nature of the market
- D you have strong quality performance in the existing program
- Is the program financially viable?
For a complete list of iProtean courses, click here.
iProtean Symposium & Workshop
Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Brian Wong, M.D. (The Bedside Project), Doug Mancino, Esq. (Hutton & Williams, LLC) For more information, click here.
For more information about iProtean, click here.