ACA de­liv­ers ex­pected spend­ing jolt, but long-term cost growth un­cer­tain

Modern Healthcare - - NEWS - By Bob Her­man

The Af­ford­able Care Act ex­panded health cov­er­age to mil­lions of Amer­i­cans in 2014. More peo­ple had in­sur­ance to pay for health­care ser­vices, so de­mand and spend­ing pre­dictably went up quickly.

But the im­por­tant ques­tion for the fu­ture re­mains the same: Will health­care be able to avoid large spend­ing spikes and move to a more sus­tain­able pay­ment sys­tem?

“It’s ab­so­lutely no sur­prise that 2014 had a higher rate of in­crease be­cause of all the ad­di­tional peo­ple get­ting cov­er­age,” said Paul Gins­burg, a health econ­o­mist at the Univer­sity of Southern Cal­i­for­nia. “The pur­pose of cov­er­ing them was to al­low them to use more ser­vices.”

The U.S. health­care tab topped $3.03 tril­lion in 2014, up 5.3% from 2013, ac­cord­ing to fig­ures from the Of­fice of the Ac­tu­ary, an in­de­pen­dent arm of the CMS. The data, pub­lished last week in Health Af­fairs, dif­fer only slightly from the pro­jec­tions re­leased in July. The amount spent on each per­son av­er­aged $9,523 last year, a per capita in­crease of 4.5% year over year. Health­care rep­re­sented 17.5% of the na­tion’s gross do­mes­tic prod­uct in 2014, up from 17.3% in 2013.

The 5.3% an­nual growth rate was the high­est since be­fore the 2008 re­ces­sion. More re­cently, the U.S. health­care sys­tem recorded his­tor­i­cally low growth in ex­pen­di­tures. Many ob­servers be­lieve that is mostly be­cause the Great Re­ces­sion bat­tered de­mand for health­care ser­vices.

Now the tide is slowly turn­ing, al­though ac­tu­ar­ies and ex­perts gen­er­ally don’t ex­pect health ex­pen­di­tures will re­turn to the days of dou­ble-digit yearly growth.

“Ag­gre­gate health­care spend­ing growth in 2014 had been widely pre­dicted by econ­o­mists, and it is not sur­pris­ing, given that more peo­ple are cov­ered and get­ting the health­care they need,” Richard Frank, HHS’ as­sis­tant sec­re­tary for plan­ning and eval­u­a­tion, said in a state­ment. “Faster growth in ag­gre­gate spend­ing due to ris­ing cov­er­age will be tem­po­rary, and will fade in the com­ing years.”

In ad­di­tion to more peo­ple hav­ing health in­sur­ance— along with the costs, sub­si­dies and ad­min­is­tra­tion as­so­ci­ated with that— high-priced prescription drugs have fu­eled the uptick in spend­ing. So­valdi and Har­voni, the block­buster hep­ati­tis C drugs made by Gilead Sci­ences, were named as two of the cul­prits.

Prescription drugs ac­count for only 10% of health­care ex­penses, but spend­ing on them in­creased 12.2% in 2014. The prices of drugs such as Har­voni are ex­pected to go down the longer they are on the mar­ket. In­sur­ers and phar­macy ben­e­fit man­agers have al­ready hag­gled the prices down by half in some cases. But many other new classes of costly drugs could keep spend­ing high un­less the crit­i­cism they’re fo­ment- ing com­pels law­mak­ers to rein them in.

“I think the drug spend­ing bump is most con­cern­ing be­cause there could be a lot more spe­cialty drugs in the pipe­line that will bump spend­ing even more in the fu­ture,” Gins­burg said.

What re­mains murky from the ac­tu­ar­ies’ re­port is whether hos­pi­tals, doc­tors and oth­ers in the health­care de­liv­ery sys­tem have be­gun chang­ing their ways enough to help con­trol costs. There’s skep­ti­cism about how quickly providers are shift­ing away from the fee-for-ser­vice sys­tem, al­though some econ­o­mists are op­ti­mistic that val­ue­based pay­ments can mean­ing­fully lower the na­tion’s health­care ex­penses. The fed­eral gov­ern­ment has vowed to shift half of Medi­care spend­ing to al­ter­na­tive pay­ment mod­els by 2018. It may still be sev­eral years be­fore health pol­icy ex­perts understand how well those pay­ment re­forms are work­ing. “How the health sec­tor re­sponds to the evolv­ing ac­cess and in­cen­tive land­scape, as well as un­der­ly­ing eco­nomic con­di­tions, will de­ter­mine the fu­ture tra­jec­tory of health spend­ing growth,” the ac­tu­ar­ies wrote.

Since the ACA’s first en­roll­ment pe­riod in Oc­to­ber 2013, more than

“Faster growth in ag­gre­gate spend­ing due to ris­ing cov­er­age will be tem­po­rary, and will fade in the com­ing years.”

Richard Frank HHS as­sis­tant sec­re­tary for plan­ning and eval­u­a­tion

Many econ­o­mists and an­a­lysts are con­cerned that health plans are in­creas­ingly leav­ing peo­ple un­der­in­sured.

23 mil­lion peo­ple have gained cov­er­age through the ex­changes or Med­i­caid. Not sur­pris­ingly, the amount spent on Med­i­caid in­creased sub­sta­nially in 2014 as 26 states ex­panded el­i­gi­bil­ity to adults earn­ing up to 138% of the fed­eral poverty level. Med­i­caid ex­pen­di­tures rose 11% last year, mostly on the fed­eral side, be­cause the fed­eral gov­ern­ment must pay for the full cost of ex­panded el­i­gi­bil­ity un­til 2017. As of now, 30 states and the Dis­trict of Columbia have ex­panded Med­i­caid.

Medi­care spend­ing climbed 5.5% in 2014, to­tal­ing $619 bil­lion, mean­ing that for ev­ery $5 the U.S. spent on health­care, $1 came from Medi­care. That was higher than the ag­gre­gate 3% growth rate in 2013, CMS ac­tu­ar­ies said. It calls into ques­tion whether early Medi­care pay­ment re­form pro­grams and pi­lots such as ac­count­able care or­ga­ni­za­tions, bun­dled pay­ments and read­mis­sions penal­ties are hav­ing much im­pact on costs.

The amount con­sumers spent out of their own pock­ets at the point of ser­vice, in­clud­ing co­pays and de­ductibles, grew only 1.3% in 2014. The CMS at­trib­uted that low growth rate to more peo­ple gain­ing health in­sur­ance, and there­fore not be­ing sad­dled with full out-of­pocket costs.

But many econ­o­mists and an­a­lysts are con­cerned that health plans are in­creas­ingly leav­ing peo­ple un­der­in­sured, mean­ing that con­sumers are avoid­ing high out-of-pocket pay­ments by skip­ping care or not re­fill­ing pre­scrip­tions, as em­ploy­ers and in­di­vid­ual poli­cies shift more costs to them.

This year, health­care spend­ing growth ap­pears to be ris­ing at an even faster clip. Ex­pen­di­tures grew by more than 6% in each of the first two quar­ters this year and by 5.8% in the be­gin­ning of the third quar­ter, ac­cord­ing to data an­a­lyzed by the Al­tarum In­sti­tute’s Cen­ter for Sus­tain­able Health Spend­ing.

Hir­ing in the in­dus­try has fu­eled some of that growth. Health­care added 432,700 jobs in the first 11 months of 2015—more than the 410,000 jobs the in­dus­try added in 2013 and 2014 com­bined.

Source: CMS Of­fice of the Ac­tu­ary

Source: CMS Of­fice of the Ac­tu­ary

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