Do we really know what is going on with health care spending?

Do we really know what is going on with health care spending?

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.

#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.

Bob Doherty is Senior Vice President of Governmental Affairs and Public Policy, American College of Physicians and blogs at The ACP Advocate Blog.

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  • Cheryl Handy

    Unfortunately, healthcare spending does not reflect the actual market cost of health care services (and “products” like medications, etc.) Government interference in the healthcare system skewed the real, transparent cost of healthcare first by the Medicare in 1935, then Medicaid in 1965, then by introduction of managed care in 1971 (thanks to President Nixon).

    IMHO, the beginning of the end to a market driven health care system was when the Nixon administration announced a “national health strategy” – the development of HMOs. The federal government established planning grants and loan guarantees for HMOs, towards a goal of increasing number of HMOs from 30 in 1970 to 1700 in 1976. By 1980, 90% of the population (i.e. about 40 million people) were enrolled in HMOs.

    Managed health care discourages patients from personal, financial responsibility in obtaining medical care. Patients no longer paid their physicians directly for medical care. There was no financial incentive for the patient to first treat his own sprained ankle or sniffle before seeking physician car. The trend moved far away from a” direct pay model for pcp and catastrophic health insurance for serious illnesses and accidents.”

    Interestingly, it took many years for the dental professional to jump on the managed care band wagon. Curiously, Medicare (and thus the government) still doesn’t cover dental. Veterinarians still maintain a market driven, transparency in healthcare costs. Lucky them.

    We have opened the proverbial tube of toothpaste of managed care and government subsidized care. Patients generally do not consider the actual cost of a physician visit or actual cost of prescription drugs. The care is largely considered a right in this country.

    The further we get away from the patient-physician relationship, the less likely any of us will know the real cost of healthcare. Who comes between the patient and physician?

    (1) Insurance companies (with whom doctors have contracts for reimbursement),

    (2) Government entities (again, issue of reimbursements),

    (3) Employers (duty owned by physician to employer in order to get paid)

    (4) Pharmaceutical companies (to extent physician is consultant),

    (5) Medical equipment supplier (to extent physician is consultant).

    Then (since it is the ultimate single payer), ObamaCare will imho be the final nail in coffin of healthcare cost containment and transparency. ACA is ultimate skew of real healthcare costs.

    In a perfect world, we could get back to direct pay to physicians, transparency in health care pricing with insurance only for catastrophic events. But, it doesn’t seem we will be able to put toothpaste back in tube. Once patients feel entitled to see physicians for every sneeze and bad knee, it is probably impossible to end the entitlement.

    • Garry

      The point, which some physicians avoid discussing, is “How do you justify your fee?”

      Why do others charge less for the same service you provide? How do you break down the fee? Can you tell me?

      • Cheryl Handy

        Market driven healthcare is not a new concept. In fact, even today, cosmetic plastic surgeons have to price their services everyday. There are direct pay model physicians that price their services and even surgeons who price their services.

        Everyday, other professions deal with issue of pricing a service (as opposed to a good). CPAs, Lawyers, Consultants. These professionals justify their fees everyday to the public – experience, research, publications, contacts, etc.

        Certainly physicians have enough self respect and confidence in themselves that they can price the value of their services for a capitalist market driven system.

        • Robert Luedecke

          Physicians can do exactly what you called for. If you accept the fact that some very hard-working people will never be able to afford healthcare for their families, then we are good with your plan. If instead you acknowledge that the US is the only industrialized nation in the world to not have a way for all its citizens to get good healthcare, then we fall way short, even with our current system. I think we are smart enough to find a way to take care of the people who cook our food and cut our lawns and build our houses. We can’t do without people in all those jobs and we should not make them do without healthcare.

  • johnchilds3

    how is it possible that Americans’ health is getting worse when americans are getting fatter and increasing BMI has been shown to improve overall health????

    • Dorothygreen

      I read that study too. The way you explained it is as the media does. The researches found that compared to normal BMI those who were overweight (up to a BMI of around 30 – I may be off some here) had 4% chance of living longer.

      Those in the higher range BMI still had a higher risk (I think about 18%) of dying younger. Increased waist circumference was also discussed as a risk factor at lower BMIs than obesity being a risk. Also, that folks who had normal BMI might, on one hand, have other health risk factors not shown in the data, and on the other hand also probably included those who where very fit, with a high muscle mass.

      It didn’t see anything about being overweight actually improving overall health, just a small chance of living longer. I take it to mean that some folks, perhaps those who mostly eat a healthy diet, but have some extra pounds, may do better than some who are normal weight but eat mostly unhealthy food.

  • Jim Jaffe

    interesting, perplexing and challenging perhaps, but hardly curious — or curiouser.

    there’s a facile assumption that there is — or ought to be — a correlation between health (which is to say medical) spending and health status or outcomes. not particularly logical. one can imagine a society where all have healthy habits and the result is good health status and low medical costs. or one can imagine one more like ours where we must spend more to offset out bad habits.

    and while it is good new that health spending isn’t growing explosively, it is important to remember that it is growing at rate that’s more than double inflation. that’s why it is untenable. one can imagine health costs in the US rising by 2% annually for the next decade. improbable, but could happen. if this occurred during a period when the economy was growing by less than 1%, we’d still be confronting a growing problem.

  • John Feehan

    In item #2, you quote an IOM finding “The U.S. spends more on healthcare than any other country but our health is much worse” but then you seem to conclude that’s “despite the fact we spend much more on health.”

    The terms switch from spending more on “healthcare” to spending more on “health”. Those don’t sound like the same things to me. Besides, it also seems to me that “healthcare” (as opposed to “medical care”) is largely free in the U.S.

    Clarify please?

  • Robert Luedecke

    Very balanced and logical writing! Congratulations on being able to summarize so well. I think you are right that we understand little of why health costs have gone down.

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