The ACP Advocate Blog

by Bob Doherty

Thursday, January 17, 2013

Curiouser and curiouser!

Trying to figure out what is going on with health care costs is like Alice’s adventures in Wonderland, things are just getting curiouser and curiouser. To illustrate:  which of the following statements do you think are correct?

1.    It’s been 50 years since health care costs increased this slowly.
2.    The U.S. spends more on healthcare than any other country but our health is much worse.
3.    Last year continued a three year trend of historically low Medicare cost increases.
4.    Looking ahead, Medicare spending is projected to climb at a rate the country can’t afford.
5.    ObamaCare is driving up premium costs.
6.    ObamaCare is keeping healthcare cost increases down to historically low levels.

A credible case, based on the evidence, can be made for every one of the above statements, including the ones that appear to be in contradiction to each other!  Let’s boil down each one, in order.

#1: “It’s been 50 years since health care costs increased this slowly.”  True!  In 2011, health care spending grew only 4.4%, the lowest in fifty years, and that trend continued into 2012.

#2:  The U.S. spends more on healthcare than any other country but our health is much worse.” True!  NPR reports on a new Institute of Medicine study that found “Americans are actually less healthy across their entire life spans than citizens of 16 other wealthy nations” and “the gap is steadily widening” despite the fact we spend much more on health.  (So much for American Exceptionalism!)

#3: “Last year continued a three year trend of historically low Medicare cost increases.”  True!  According to official government numbers, Medicare per capita costs went up by only a fraction of a percent In 2012 (0.4%), much less than the rate of growth in the economy (3.4% growth per capita). Over the three year period from 2010-2012, Medicare spending per beneficiary grew an average of 1.9% annually, or more than 1 percentage point slower than the average annual growth of 3.2% in per capita GDP (that is, at GDP-1.3).

#4:  “Looking ahead, Medicare spending is projected climb at a rate the country can’t afford.”  Probably true, but maybe the trajectory isn’t quite as worrisome as it used to be—or is it?  On one hand, the government report cited earlier, projects that, “The slow growth in spending per beneficiary from 2010 to 2012 combined with the projections of spending growth at GDP+0 for 2012-2022 is unprecedented in the history of the Medicare program. If sustained, the slower growth would improve Medicare’s ability to meet its commitments to seniors and persons with disabilities in future generations.”   But the qualifier “if sustained” leaves a lot of room for doubt. The Fiscal Times notes that, “ ‘Even though spending per beneficiary is projected to grow at or below the rate of per capita GDP, the number of Medicare beneficiaries is projected to grow at approximately 3 percent a year,’ the HHS report says. The 50 million beneficiaries today will grow to more than 85 million in 2035. ‘As a result, aggregate Medicare spending will account for a growing share of GDP over the next decade.’”

Okay. Let’s move onto #5:  “ObamaCare is driving up premium costs.”  It is true that many insurers are raising  premiums in the small and individual insurance market, but experts disagree on how much of that is due to ObamaCare, and how much of it is due to loosely-regulated insurance companies gouging the consumer.  The conservative Wall Street Journal editorial page predictably pins the premium increases on Obamacare, arguing that the reason insurance companies are raising premiums is because of the law’s “newly imposed mandates” and taxes.  The liberal New York Times editorial page predictably pins the blame on insurance companies, noting that the “jarring discrepancy [between double-digit premium increases and unusually low rates of national health care spending increases] suggests that both the federal government and the states need more power to reject premium increases that can’t be justified.”

(I agree with those who say it is counter-intuitive for health insurance premiums to be going up by double-digits when health spending increases are the lowest in half a century.  A small part of the increase might legitimately be due to ObamaCare’s mandates and taxes, although the law’s critics forget that people are getting better benefits and protections as well, but shouldn’t premiums be at least somewhat related to the costs of care, so that as health care spending slows, premium growth should slow as well?   If they aren’t, then insurance companies sure got some explainin’ to do, and regulators shouldn’t just accept the excuse that it is all ObamaCare’s fault).

 And now for # 6 (drum roll): “ObamaCare is keeping healthcare cost increases down to historically low levels.”  Critics point to the premium increases to say “absolutely not” and supporters to the three year spending slowdown to say “absolutely yes.”  The rest of us aren’t so sure.  Maggie Mahar shifts through the competing claims and concludes that “one thing is certain:  medical spending trends are headed in the right direction.  At last, we seem to be breaking the back of healthcare inflation.”

I wish I could be as certain as she is—we are heading in the right direction, but I don’t know that it can be sustained. And we still have that “little” problem of demographics:  more older and sicker people needing health care benefits, fewer healthy and younger workers being around to pay for them.

Maybe we should all just take a deep breath and admit we don’t really know what is going on with health care spending.   Liberal supporters of ObamaCare shouldn’t rush to the judgment that it has “broken the back” of health care inflation, especially since most of its supposedly cost-saving delivery system reforms are just getting started.  Conservative critics of ObamaCare shouldn’t rush to the judgment that it is causing premiums to explode, especially since most of its coverage mandates and taxes won’t fully go into effect until next year, and its supposedly cost-saving delivery system reforms are just getting started. 

Let’s all acknowledge that it is good news for everyone if the three-year slowdown in health spending can be sustained, no matter who or what is responsible, since that would make it a whole lot easier to reduce the federal budget deficit and keep care affordable for individuals, families and employers. 
Let’s admit we don’t know why health care costs aren’t increasing as fast as they used to, and we don’t know if the trend can be sustained. 

Let’s face up to the fact that we still as a country spend more on healthcare than anyone else (even if the rate of increase has slowed) and our health is worse in most respects, and that can’t be good news.
As I said, it’s getting  curiouser and curiouser.

Today’s question: What do you make of the data on health care spending?

4 Comments :

Blogger Margaret Mahar said...

Bob--

Thanks for mentioning the post.

You're right that most the ACA reforms that are suppose to slow spending haven't kicked in yet, but it seems that hospitals are anticipating lower revenues under reform, and so are doing their best to lower costs. This means that the bills they send to Medicare are lower.
At the same time two years of discussion about reform may have made some doctors and even some patients more cost-conscious, espeically when it comes to ordering tests. And when we undergo fewer unncessary tests, false positives are less likely to lead to unncessary or futile procedures.
Finally, on the aging of the population: over the past two decades health care inflation has been driven by technological changes (sometimes "advances,' sometimes not)that lead to higher and higher prices. Going forward, as Uwe Reinhardt has shown, technology, not the aging of the population is likely to continue to be the primary force driving
health care inflation. http://www.healthbeatblog.com/2008/03/will-boomers-ba/
If we begin to practice evidence-based medicine, and refuse to over-pay for the "new, new thing" we can
slow inflation despite changing demographics. (Keep in mind that more than 20 years of reserach suggest that 30% of our health care dollars are wasted on overpriced products and procedure that provide no added benefit to the patient.
Finally,other countries that have already experienced rapid aging of the population (Germany, Sweden, etc.) have managed to avoid the explosion in health care spending that so many predict is "inevitable" here.
You're right that no one can be sure what the future holds, but I'm optimistic that, over the next 10 years, we'll see health care spending level off as a percentage of GDP--and with some luck, it will fall as a percentage of GDP.

January 17, 2013 at 1:49 PM  
Blogger Bruce said...

One impact on Medicare per capita costs is that the system will rapidly become more "bottom heavy" with younger patients as the large number of baby boomers slip over the Age 65 benchmark and become first time Medicare beneficiaries. 65 year olds have lower costs than more average 70-75 year olds, so the mean cost per patient goes down. When the baby boomers hit 75-80, it will be very expensive.

January 17, 2013 at 2:49 PM  
Blogger Bruce said...

Part of the per capita slowdown in Medicare costs might be the bolus of baby boomers. They enter the program relatively health at age 65, and there are a lot of them. This might bring down (for a while) both the average age and thus average cost of Medicare per person. However, as the same baby boomers age into the 70-80 range, they costs will be high.

January 17, 2013 at 2:51 PM  
Blogger Joeadams said...


The shortage or primary care physicians has often been mentioned as a significant driver of health costs; and the shortage is about to become acute. The problem is largely caused by the huge payment disparity between primary care and procedure-oriented specialists, but there has been little discussion of causes or solutions.

The RBRVS (Resource Based Relative Value System) has worsened the payment disparity. (Bodenheimer T, et al. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306).

CMS relies almost exclusively on the advice of the RBRVS Update Committee, the “RUC,” a panel of 29 doctors who represent procedure-oriented specialties almost exclusively, vote by secret ballot, and whose recommendations are virtually always accepted by Medicare. This "secretive" body (according to the Wall Street Journal: http://online.wsj.com/article/SB10001424052748704657304575540440173772102.html)
has de facto control over how physicians are paid.

There has been a call (www.replacetheruc.org) for primary care medical societies to visibly and loudly withdraw from participation in the RUC, de-legitimizing the process.

See http://hcrenewal.blogspot.com/search/label/RUC

February 1, 2013 at 12:42 PM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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