Skip to main content

Health Care Spending Growth and the Reform Law

By November 26, 2013Commentary

Health care spending growth has slowed over the last few years, although it is still expanding faster than either general inflation or gross domestic product, which means it is still becoming a larger part of our economy.  The extent to which the slowdown is due to the health reform law has been debated and now an Administration source, the Council of Economic Advisors, has issued a report saying that the reform law is responsible for a good chunk of the decline in trend.   (CEA Report)   Not only have per capita spending increases slowed, but health inflation–growth in health care unit prices–has declined to a low level as well.  The report claims this is due to the reform law because it has reduced Medicare payments, which has created spillover effects.  No one debates that lower growth rates in health spending will be economically beneficial, assuming there is no negative impact on overall health.  The authors, however, are ignoring other factors at work, and completely fail to discuss the likely cost and spending-increasing aspects of the law.  For example, while noting a slowdown in drug spending and prices, they fail to acknowledge that this is completely due to continuing greater penetration of generic drugs.  Brand name drug prices have continued to grow rapidly, and as we saw in yesterday’s post, the ongoing specialty drug binge will cause drug spending to begin to increase more substantially.  Similarly, the greater leverage which hospitals and other providers have achieved through consolidation and development of ACOs and similar organizations will inevitably flow through the system in higher prices.  And the massive expansion of regulatory mandates adds to providers’ and payers’ costs.  It seems more likely that we are experiencing a pause which is creating pent-up demand for higher prices by providers and this demand will eventually have to be met.

The reform law itself has untoward effects on spending.  Most of the enrollment and expansion to date has been either in Medicaid or by individuals who will get subsidies.  This will lead to large increases in public spending and in regard to Medicaid, there are few cost-sharing features to deter inappropriate utilization by enrollees.  What does account for much of the spending slowdown, and is largely disregarded by the authors, is the continuing change to more cost-sharing for commercial enrollees, a trend which the reform act will only exacerbate.  This increased cost-sharing may be leading to deferral of needed as well as unneeded care, so its quality impacts are unclear.  It is understandable that the Administration wants, especially at this point, to try to find anything positive in the reform law, and the timing of the report is certainly no accident.  But those who are celebrating a supposed permanent shift in the rate of health spending growth are undoubtedly celebrating too soon.

Leave a comment