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The Consumer Share of Health Spending Growth

By July 31, 2014Commentary

For the last several years health spending growth has been below its prior increase trend, largely due to the recession.  At the same time, consumers are bearing more of total health spending, a contrast explored by a paper sponsored by the Federation of American Hospitals.   (FAH Paper)   From growth rates of over 6% to as high as 9.7% in the early 2000s, the last few years have been in the 3.5% to 4% area.  While this slowdown varies by payer segment, it is strongly seen in Medicare, where nominal per beneficiary spending has declined 2.4% in 2014 and inflation adjusted spending by 3.4%.  This may be largely due to an influx of young, healthier, beneficiaries, as well as decreases in reimbursement dictated by the reform law.  The paper claims that hospital prices are growing at a slow rate, but the figure quoted is much lower than that shown by other sources, and they don’t show the rate of increase for private insurers, which we will see becomes important.  It is true that hospital and other provider price increases have been lower in recent years, although still well above general inflation, and still a major source of greater spending.  In listing the causes of the overall decreased growth rate, the paper includes hospital-related factors, which are not usually identified by other sources as a major cause of spending slowdowns, quite the contrary.  They also have a bucket called “Employer and Insurer-led Strategies”, which then goes on at great length about the increased use of high-deductible plans and other forms of cost-sharing common in employment-based health benefit plans.  Using some accurate data, the paper points out that employees are paying more of the total share of costs of employment-related health plans.  This may lead to delay of needed care or to not being able to pay bills for services they do receive.  This in turn means hospitals may see more bad debt or even get less business when care is deferred.

Oh, now I get it, the whole point of this paper was to try to get legislative or regulatory limits on the share of health spending borne by consumers, so that our poor deprived hospitals don’t suffer unfairly.  I mean, shouldn’t we all be concerned that hospitals, especially non-profit ones which often only show tens of millions of operating income annually, are really struggling, and may not be able to pay their executives several million dollars a year.  I think I may be a little more concerned that employees are asked to pay substantially more in premium share and service cost-sharing at a time when wages and overall personal income growth is sluggish at best.  And the underlying reason is that companies cannot indefinitely see any cost rise at a rate far above inflation or they won’t be in business for long, so they have to put limits on how much of the total bill they pay.  And whether the hospital association and its stooge authors like it or not, the facts are very clear that hospital unit price growth has been a major contributor to the cost of private insurance plans and hospitals have shown absolutely no restraint in exercising market power to extract every penny they can from insurers.  But of course, the widespread recognition of that fact is why this paper got written in the first place.

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