News Feature | January 24, 2014

Healthcare Spending Slowed For First Time In Over A Decade

Christine Kern

By Christine Kern, contributing writer

Revenue Cycle

Shift in location for performance of services, frugality of the consumers, Obamacare credited

For the first time since 1997, U.S. healthcare spending did not outpace the gross domestic product. In a report published by Health Affairs, the Office of the Actuary at the Centers for Medicare and Medicaid Services stated that total U.S. healthcare spending was $2.79 trillion in 2012, up 3.7 percent from the previous year, or approximately 17.2 percent of the national economy.

A projected 6.5 percent healthcare inflation rate is anticipated for 2014, a rate decrease resulting from findings reported by the Health Research Institute of PricewaterhouseCoopers LLP. Ironically, this slowdown contradicts the expected trend in U.S. healthcare costs, based on historical data.

Prior to 2005, the American healthcare insurance inflation rate was as high as 8 percent. The PwC Research Institute traces the slowing inflation rate back to the healthcare reforms of the Obama administration and the implementation of the AFA over the past few years.

Actually, the report by the Centers for Medicare and Medicaid Services suggests that the Affordable Care Act (ACA) has had only a “minimal" effect on overall healthcare spending to date because little of it is already in place. Healthcare coverage subsidies for up to 30 million Americans will not be paid out until 2014, and many key cost-cutting measures for Medicare and other initiatives are still being debated and implemented.

“For example, private health insurance spending and enrollment were affected by the provision, effective in late 2010, that requires health insurers to cover dependents of enrollees up to age twenty-six. Estimates suggest that as many as 2.7 million dependents who either had had some other form of coverage or had been uninsured moved to their parents’ plans by 2011. Adding these dependents increased overall employer-sponsored insurance spending. However, they are typically less expensive than the average private enrollee because they are generally younger and healthier. Thus, adding them helped temper the increase in the average per enrollee cost of employer-sponsored insurance,” the report says.

Since 1990, healthcare spending in the United States has quadrupled, and doubled since 2000, placing ever increasing pressure on already beleaguered consumers, employers, and government programs like Medicare and Medicaid.

The report states that “The main factors behind the slow growth of health spending were a decline in investment in structures and equipment, a further drop in private health insurance enrollment, and a slowdown in out-of-pocket spending. In 2009 alone private health insurance enrollment fell by 6.2 million (a 3.2 percent decline)—the largest one-year drop recorded to date in the National Health Expenditure Accounts. There is a well-documented correlation between insurance coverage and health care use: People tend to seek less medical care when they lack coverage.” A major impetus for the recent slowdown was that many Americans lost health insurance and incomes during the Great Recession and another factor in the slowdown in medical costs is the ripple effect of the sluggish economy. Consumers who are faced to shoulder more of their medical cost burdens are being more frugal in their choices. It means that many are questioning the need for procedures, delaying or even refusing them.

It also means, however, that consumers are looking for more cost-effective ways of treatment, moving many procedures from costly hospital settings to more affordable mobile or physician-based offices. And the government’s new re-admission policies have resulted in significant drops in the number of readmissions and in the way that readmissions are covered and handled. Higher deductibles also play a greater financial responsibility in the hands of the patient.

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