The Healthcare Spending Trend

by Dish Staff

Health Care Costs

Yesterday, the Centers for Medicare and Medicaid Services (CMS) released a report on projected healthcare spending. What Jonathan Cohn sees as the “main takeaway”:

We’re making progress on controlling the cost of health care. We might even be making a lot of progress, although it’s too soon to tell.

Why the report may be too pessimistic:

Keep in mind that CMS actuaries are famously conservative. In the past, they’ve tended to overestimate how much spending will risenot because they’re imprecise or biased, but because they tend to err on the side of caution. In a conference call Wednesday, several actuaries made clear they weren’t discounting the possibility that the health care industry is becoming more efficient. One actuary said “Right now it is still too early determine” how much the health industry has changed. Others expressed similar sentiments.

“If the payment reforms have the kind of effect advocates of them expect, these projections could turn out to be conservative,” Larry Levitt, senior vice president at the Kaiser Family Foundation, told me later via e-mail. “The actuaries tend to take a wait and see approach to new developments where there is little evidence as to what effect they’ll have. We are in somewhat unchartered territory here.”

Jason Millman adds important caveats:

A few points worth noting about the actuary’s projections: Taking a cue from the trustees overseeing Medicare, the actuary’s office assumes that Congress will once again approve a “doc fix” to avoid the scheduled 21 percent cut to Medicare physician payments. The actuary also assumes that the Affordable Care Act’s temporary bump in federal reimbursement to Medicaid doctors will go away at the end of the year as planned, though some Democrats and physician groups are pushing for an extension of the policy to encourage more doctors to take Medicaid patients as the program expands.

Philip Klein, as he does with most ACA-related news, puts a negative spin on the report:

As the economy improves, Obamacare continues to expand, and the Medicare age population explodes, health spending is expected to rise by an average of 6 percent a year over the 2015 to 2023 time period. Though this would be lower than the 7.2 percent average over the 1990 to 2008 span, it would still outpace the growth of the economy.

Because of this, health spending as a share of gross domestic product is expected to increase from 17.2 percent in 2012 to 19.3 percent in 2023 – representing nearly one in five dollars of the economy.

Kliff frames the numbers differently:

Medicare actuaries expect that health care costs will outpace economic growth by 1.1 percent. That’s not ideal; most health economists would like to see the two numbers grow at the exact same pace. But it’s still a smaller gap than what has existed historically. Between 1990 and 2008, health cost growth outpaced the economy by 2 percent.

This is big. The Medicare actuaries are saying that, while they do expect a slight rebound in medical spending post-recession, they don’t think we’re headed back to the super-fast growth that, for decades, has been a hallmark of the health care industry. And when health care eats up a smaller chunk of the economy (and the federal budget) that leaves more money to spend on other important things like education and infrastructure.