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