2014 Healthcare Spending: Nation vs. Consumers

The years since the start of the Great Recession in 2008 and the enactment of the ACA in 2010 have produced good news for those who worry about the growth of healthcare spending and the share of GDP that it consumes: spending growth is tapering off and, as a share of the country’s economic activity, it continues to be relatively stable.

But while there is good news for the nation in the aggregate, the news for individual consumers is decidedly mixed.

GOOD NEWS FOR THE NATION

According to the most recent annual report from the Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services (CMS), published in December 2014, aggregate healthcare spending increased just 3.6% in 2013, totaling $2.9trillion for the country or $9,255 per person, a decline from 2012’s increase of 4.1%.[1] The 2013 growth rate was the lowest of the five-year period examined, the highest rate having been 2012’s 4.1%.[2]

The CMS report attributed 2013’s slow growth to slowdowns in private health insurance costs, in Medicare spending, and in spending on medical equipment and structures, trends that were only partially offset by faster growth in Medicaid outlays.[3]

Viewed against GDP growth, for the fifth in a row, healthcare spending remained stable at 17.4% of the nation’s economic output in 2013.[4]

MIXED NEWS FOR CONSUMERS

In the aggregate, slower growth in healthcare spending is good news.

But details matter and, in the case of healthcare, they matter a lot. And the details of healthcare spending in 2013 reveal decidedly mixed news for individual consumers.

COST SHIFTING TO CONSUMERS: NET-NET, PAYING MORE

Take, for instance, the CMS actuaries’ notation that the slower aggregate growth was due, in part, to “slower growth in private health insurance premiums” which CMS attributes to “low enrollment growth in private health insurance plans, the continued shift of enrollees to high-deductible health plans and other benefit design changes, low underlying medical benefit trends, and the impacts of the Affordable Care Act.”[5]

Unpacking the details of what caused the “slower growth in private health insurance premiums”, an expense that consumes one-third of the nation’s total health care spending, shows that it was due in large part to changes in the underlying policies themselves e.g., faster growth in “cost sharing” i.e., higher out-of-pocket expenses such as deductibles.[6] Analysts have estimated that in nearly half the states, average deductible more than doubled in the past ten years for employees in both large and small firms.[7]

This increase in employees’ out-of-pocket expenses is important as more than half of Americans younger than 65 years of age receive their health insurance through their employer.[8]

This cost shift for ESI plans was replicated in the plans offered on the ACA marketplaces; consumers saw higher deductibles and out-of-pocket expenses in many of the popular Silver and Bronze plans.[9]

COST SHIFTING & UTILIZATION: BEWARE OF UNINTENDED CONSEQUENCES

While premiums may not be rising as quickly as they had been prior to the Great Recession, households are spending more of their budget on medical care when it is needed. The recent 2013 Health Care Cost and Utilization Report of the Health Care Cost Institute (HCCI) noted that while consumers with employer sponsored insurance (ESI) spent only $183 (3.9%) more in total in 2013, their out-of-pocket spending increased by $800 (4.0%) over 2012.[10]

This cost shift to the consumer may have long-term adverse consequences for both the financial and physical health of individual Americans and for the nation’s economy. A RAND Corporation study of 800,00 people concluded that while people in high deductible plans cut back on unnecessary care, they also cut back on vital, life-saving care such as mammograms and other cancer screenings, childhood vaccinations, and prescription medications.[11]

To the extent that cutbacks in care result in adverse health consequences over time, they may also result in higher spending over time as the failure to seek low-cost preventative care can result, at a later date, in needing high-cost, acute care that could otherwise have been avoided.[12] The HCCI reported that utilization rates were down in 2013 for inpatient and outpatient services and for branded prescription medications.[13] Among those who have ESI, 2013 saw a 3.8% drop in the number of office visits to primary care providers, a potentially troubling statistic given that PCP visits are among the most services most commonly used by children.[14]

At the individual level, despite lower utilization of inpatient services, for those consumers who do need acute care, prices are rising quickly; HCCI calculated that in 2013 acute inpatient prices rose 6.3% over 2012 prices.[15] This continued the trend of rapidly rising year-over-year prices for acute inpatient care during 2012 (5.5%) and 2011 (5.9%).[16] For consumers who are postponing preventative and other necessary care in light of rising out-of-pocket requirements, the rising price for acute care could be an added complication.

GOOD NEWS FOR CONSUMERS & PROVIDERS: MORE AMERICANS HAVE HEALTH INSURANCE

While it is still too early to say with certainty how the ACA has impacted healthcare spending, either in the aggregate or at the individual level, one detail of the ACA’s impact is irrefutable – more Americans are now covered by health insurance, either private or public, than were covered before the ACA took effect.[17]

The number of Americans without health insurance dropped in the first year of the insurance mandate, 2014, by nearly 25%; estimates indicate that between 8 – 11million more people are now covered either by private or public plans than were covered before the ACA was enacted.[18] The expansion of Medicaid accounted for more than 50% of these newly enrolled Americans.[19]

An additional 3 – 4million individuals, mostly young adults, gained coverage under the provision in the ACA that allows parents to include dependents younger than 26 on their private plans; this provision took effect for plans that were renewing starting in September 2010.[20]

ACA MARKETPLACES: MORE CARRIERS, MORE PLANS

According to data released by Health & Human Services in December 2014, the success of the online marketplaces in their first year both attracted new carriers for 2015 and induced those who had participated in 2014 to offer more plans and more types of plans.[21] Several of the biggest carriers who participated in 2014 are expanding their 2015 offerings and some that sat out the first year are now joining in.[22]

Based on data from the 35 states that used the federal government’s exchange for eligibility and enrollment in both 2014 and 2015, 25% more carriers are participating nationwide in 2015 than participated in 2014; 91% of people now live in a county where at least three carriers are offering qualified plans, up from just 74% last year.[23] The average number of issuers participating in these marketplaces has increased this year to four per county from three and from five to seven statewide.[24] The Commonwealth Fund reported similar results for the sixteen state-based marketplaces and the District of Columbia; nine states had more carriers, five had no change, and two had a decline of one carrier each, for a net increase of ten carriers across all sixteen state-based marketplaces.[25] In the two states, California and Oregon, that lost a carrier there were still ten carriers on their 2015 exchanges.[26]

ACA INSURANCE PLANS: MODERATE PREMIUM GROWTH IN 2014

According to HHS’ December 2014 figures, 2015 premiums for the benchmark Silver plans, i.e., those with the second-lowest cost, increased by an average of 2% before tax credits and premiums for the lowest cost Silver plans increased by 5% although HHS did acknowledge that the new plans’ coverage[27] may be different.[28]

HHS estimates that more than 70% of current enrollees can find a plan with a lower premium within the same metal bracket and that by shopping across all metal brackets, 79% of people who enrolled in 2014 can buy a 2015 plan with a net, after tax credits, monthly premium below $100.[29] For people who prefer to simply renew their 2014 plan, 50% of them will pay less than $100 per month after tax credits.

CURRENT OUTLOOK: BABY BOOMER WILD CARD & A RECOVERING ECONOMY

The inescapable fact facing the nation as a whole and individuals as consumers is that the aging of the Baby Boomer cohort will put pressure on the healthcare system – on utilization and on prices. Between now and 2030, the largest group of Baby Boomers will turn 65, an age when the medical needs of even the healthiest individuals increases.[30]

Some analysts have attributed most of the slowdown in healthcare spending since 2008 to the impact of the Great Recession while others speculate that structural changes in the healthcare sector were causing spending to slow even before 2008, although some say that there is a dearth of solid evidence to support that view.[31] To the extent that the US economy continues to recover, aggregate healthcare spending may well pick up although if wages continue to stagnate they may be a drag on healthcare spending growth. How this plays out will be known only in hindsight.

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[1] https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-03-2.html Accessed January 28, 2015.

[2] https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-03-2.html Accessed January 28, 2015.

[3] https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-03-2.html Accessed January 28, 2015.

[4] https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/highlights.pdf Accessed January 28, 2015.

[5] https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-03-2.html Accessed January 28, 2015.

[6] https://www.commonwealthfund.org/publications/issue-briefs/2015/jan/state-trends-in-employer-coverage?omnicid=EALERT670714&mid=incoming2005@gmail.com Accessed January 28, 2015.

[7] https://www.commonwealthfund.org/publications/issue-briefs/2015/jan/state-trends-in-employer-coverage?omnicid=EALERT670714&mid=incoming2005@gmail.com Accessed January 28, 2015.

[8] https://www.modernhealthcare.com/article/20141209/NEWS/312099936 Accessed January 22, 2015.

[9] https://www.modernhealthcare.com/article/20141113/NEWS/311139966 Accessed January 28, 2015.

[10] https://www.healthcostinstitute.org/2013-health-care-cost-and-utilization-report Accessed January 28, 2015.

[11] https://www.rand.org/news/press/2011/03/25.html Accessed January 28, 2015.