Healthcare Spending Increase Lowest On Record

WASHINGTON — Health care spending since the 2010 passage of the Affordable Care Act has risen by 1.3% a year, the lowest rate ever recorded, and health care inflation is the lowest it has been in 50 years, a report released Wednesday by the White House shows.

An economy hobbled by the recession and 2008 economic crisis played a role in some of the reduced spending growth, officials said, but the report cited "structural change" caused, in part, by the law.

The report's release comes as President Obama and his administration struggle with the political fallout associated with the problem-filled opening of the federal health care exchange, the online marketplace where uninsured Americans can shop for and buy insurance. The exchange's website, HealthCare.gov, opened Oct. 1 and has been hampered by outages and delays, particularly in its first weeks of operation.

Per capita spending has grown at a rate of 1.3% since 2010, the lowest recorded rate for any three-year period on record, according to the report, which was conducted by the White House Council of Economic Advisers.

Price inflation rose by 1%, the council found — the lowest since 1962.

Because of cost reductions, the Congressional Budget Office reduced Medicare and Medicaid spending projections in 2020 by $147 billion since 2010, the report noted.

The lower increases in spending as the economy has recovered is a sign the changes are structural, said Jason Furman, the chairman of the Council of Economic Advisers. Prices remain low, he said, and Medicare spending, which he said doesn't typically reflect trends, remains low.

"Health spending is certainly cyclical when you see a downturn," he said.

Republican critics of the law, such as Senate Minority Leader Mitch McConnell of Kentucky, remained skeptical, citing a report by actuaries for the Center for Medicare & Medicaid Services that said much of the reduced increase in spending was due to the economic slowdown and not the law.

That report, published in September in the journal Health Affairs, also predicted a higher rate of increase in health spending than the White House report. However, the actuaries also credited the law for some of the reduced increases in costs, as well as a slower economy, the slow growth in public programs and increased cost-sharing requirements for patients.

The actuaries report said health spending would increase after 2014 because of good economic conditions, coverage expansion in the law and the aging population. From 2012 to 2022, they expected national health spending to grow at an average rate of 5.8%. The White House report released Wednesday did not include projections.

The actuaries credited restrained Medicare spending, despite faster enrollment, which they attributed in part to "provisions in the Affordable Care Act." Going forward, the report states that out-of-pocket costs for consumers are projected to go down because of the law.

Brendan Buck, spokesman for House Speaker John Boehner, R-Ohio, said the slow growth was the "result of the terrible economy under President Obama, not his health care law."

The White House report, also cited increases in cost-sharing, such as high-deductible insurance plans, as helping to push down costs.

"Deductibles increased from 2006 to 2013," he said, but the pace of growth slowed from 2010 to 2013. "It didn't accelerate after the Affordable Care Act passed. In fact, it decelerated."

One key area in which the law helped drive costs down, the report said, are the provisions that allow Medicare to reduce overpayments to providers and health plans. Another factor, Furman said, are fines for hospitals that readmit Medicare patients within 30 days of their release and the increased use of accountable care organizations.

"For a long time, (readmission rates) were hovering around 19%, and now they are continuing to go straight down," Furman said. "A very important part of the structural story is the Affordable Care Act."

Much of the reduction comes because as the government makes changes to its huge entitlement programs, such as Medicare and Medicaid, the insurance industry tends to do the same. In this case, Furman said, they're changing the way they pay providers by forming accountable care organizations or medical homes, as well as by having the same expectations for readmission rates.

"If we pay hospitals 10% less, insurers will pay hospitals 7.5% less," Furman said, citing research that shows private insurers tend to change payments by three-quarters of what the government does.

Furman said the trends mean reduced costs for employers, and could lead to 200,000 to 400,000 new jobs per year by the second half of the decade.

"If just half the recent slowdown in spending can be sustained, health care spending a decade from now will be $1,400 per person lower," Furman said.

The Consumer Price Index statistics released Wednesday showed that "year over year health inflation slowed," Furman said.

Private insurance spending grew at an annual rate of 1.6% in the last three years, Furman said, while Medicare spending had 0.0% growth rate and Medicaid spending was "actually minus 0.5%."

However, a recent survey found employers expect to see costs go up in 2014. Per employee benefit costs increased 2.1% in 2013, but the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, found that employers expected them to rise 5.2% in 2014.

However, like Furman, they said the use of high-deductible health plans would continue to help slow growth. The survey includes 2,842 public and private companies with 10 or more employees.

The survey found that cost growth was lowest for small employers, whose costs rose about 1%; while it rose about 3.7% for employers with more than 5,000 people.

"The good news is that employers have already taken decisive action to slow cost growth so they will be in a better position to handle the challenges ahead," said Julio Portalatin, Mercer's president. "But the impact of the ACA on enrollment levels remains a huge question mark."