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Is Healthcare Spending About To Accelerate?

Is Healthcare Spending About To Accelerate? | Healthcare and Technology news | Scoop.it

Bend a resilient object and it will spring back with a vengeance once released from your grip. Is that what is about to happen to healthcare spending?

For years now, experts have been debating ways to “bend the cost curve ” – take the sharp rise in healthcare costs, picture a rapidly ascending line on a XY axis, and slow it down, bend it so it moves horizontally to the X axis.

In the last few years, we seem to have bent the curve as we’ve hoped to. Healthcare spending is growing more slowly than it has in decades. The federal government recently reported that: “The Congressional Budget Office now estimates that Federal spending on Medicare and Medicaid in 2020 will be $188 billion below what it projected as recently as August 2010.”


But this good economic news may soon come to an end, and the pent-up energy of the healthcare economy could snap back and break our budgets if we are not vigilant.

Experts are still debating why healthcare costs have slowed down of late. Some people think the Affordable Care Act, aka Obamacare, has helped to bend the cost curve. Some posit that the rise of high deductible health insurance plans accounts for a good deal of the savings.  But almost everyone agrees that the great recession of 2008 has played a leading role in reducing the growth of healthcare expenditures. When people don’t have money to spend on healthcare, they (surprise, surprise) spend less money on healthcare.

In a New England Journal of Medicine article, Charles Roehrig from the Altarum Institute mapped out what healthcare spending would have looked like if the great recession hadn’t happened, and what it would have looked like if healthcare spending had dropped in accordance with the size and depth of the recession. The picture shows that actual spending lies right between these two extremes:


The recession reduced healthcare spending. But not as much as you would think, because other factors are driving costs up, such as raising healthcare prices and the aging of our population.


Moreover, Roehrig warns that when we experience a stronger economic recovery, healthcare spending could rebound. Thanks to the ACA, more people have health insurance, and health insurance is well-known to increase the demand for healthcare services.

Pharmaceutical companies continue to bring out expensive “specialty drugs,” which Roehrig believes on their own could contribute a half percentage point per year to healthcare expenditures.


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U.S. Healthcare Spending On Track To Hit $10,000 Per Person This Year

U.S. Healthcare Spending On Track To Hit $10,000 Per Person This Year | Healthcare and Technology news | Scoop.it

There’s never a shortage of major healthcare policy events in any given calendar year ‒ and 2015 will be no exception. Here’s a short list of some that are pending and noteworthy ‒ with a few predictions.

First up isn’t a prediction as much as a major milestone that’s reflective of escalating healthcare costs. According to CMS (here) our National Healthcare Expenditure (NHE) is projected to hit $3.207 trillion this year. The U.S. Population is currently hovering at around 320 million, so 2015 looks to be the first year healthcare spending will reach $10,000 per person. We may be “bending the cost growth curve,” but the per capita amount continues to grow.

As evidenced by this chart, much of that cost is being shifted into high-deductible health plans.

The effect of this, of course, is largely unknown. Proponents of CDHP’s argue that it’s a much needed shift to foster more consumer accountability for healthcare utilization. Opponents argue that we lack the scientific evidence (certainly at this early stage) to know what the real effect is on health and outcomes  and there’s a significant risk associated with healthcare that’s delayed or avoided because of cost. This will continue to be hotly debated well into 2015  and beyond.

There was a glimmer of hope in 2014 with what appeared to be a viable solution for the Sustainable Growth Rate (SGR), but that deteriorated quickly into yet another series of punts into 2015. Ultimately, there are only three options with the SGR.

  • Repeal the legislation outright (and find the offsets to fund all the accruals)
  • Let the SGR hit ‒ and force a physician pay cut (through CMS) of about 21%
  • Punt into 2016 ‒ which then becomes part of the presidential campaign cycle.

My first prediction is that the SGR will be punted (yet again) into 2016. This is clearly intertwined with healthcare reform generally ‒ and that’s the next major stop on the 2015 healthcare reform calendar ‒ The Supreme Court.

Once again, the Supreme Court gets another big bite at the ACA apple ‒ and while the ruling won’t be announced until later in the summer ‒ the court will hear oral arguments in King v. Burwell this spring. At risk are the ACA subsidies for the 37 states that sell health insurance on the federally facilitated marketplace (Healthcare.gov). I’m not an attorney, but technically it appears to be a much easier case to decide strictly on the legal language as a technicality.

That’s not to say the Supreme Court won’t consider legal context and/or intent ‒ but the legalese appears to favor the challenge ‒ which means that millions could lose their federal subsidy through healthcare.gov. This amounts to a significant setback for Obamacare that a Republican‒led Congress isn’t remotely motivated to help fix (although it could). Attacking Obamacare piecemeal seems to be a viable alternative to outright repeal ‒ and this one has the potential to inflict significant damage on the fiscal incentives tied to the individual mandate. If the challenge is successful ‒ and I’m predicting it will be ‒ there will be much more to debate going into the 2016 presidential cycle.

The Children’s Health Insurance Program (CHIP) is also up for renewal in 2015 ‒ and while I predict it will be renewed ‒ it won’t be for the full 4 years that program advocates would like. Given all the other aspects of healthcare reform (and political debates) ahead, I think we’ll see CHIP renewed for a more modest 2 years (through 2017) which will then provide more metrics for all the political and financial calculations ahead. A September piece in the New York Times gave a good summary view of  the program to date:

 CHIP was introduced in 1997 to provide insurance for low-income children whose families earned too much to qualify for Medicaid and too little to afford private health insurance. It has since grown to cover some eight million children at an annual cost of $13 billion, with the federal government paying most of the bill. Because states determine eligibility, coverage varies greatly from state to state. But overall, CHIP has helped cut the uninsured rate for children in half, from 14 percent in 1997 to 7 percent last year. Children’s Health Insurance At A Crossroads

The number of uninsured children varies significantly across the U.S. but the states with the highest rate of uninsured kids through 2013 (according to the Georgetown University Health Policy Institute here) are these three:

  • Nevada ‒ 14.9%
  • Texas ‒ 12.6%
  • Arizona ‒ 11.9%

I also predict that the Republicans will be successful in repealing the 2.3% medical device tax that was a small component of Obamacare funding. It’s really more of a symbolic gesture (affecting about $30 billion a year for 10 years), but the Republicans have been very vocal in their opposition to this corporate tax. Last November’s election installed Republican Senator Orrin Hatch as Chairman of the tax‒writing finance committee and he has been crystal clear with his opposition.

The Senator will continue to examine and support every viable opportunity to permanently repeal Obamacare’s onerous tax on medical devices. Julia Lawless ‒  Communications Director at U.S. Senate Finance Committee, Republican Staff  (Reuters here)

Publicly traded companies that stand to benefit directly from the repeal of this tax include Medtronic MDT -0.67%, Johnson & Johnson JNJ -0.15%, Abbott Laboratories ABT +0.22%, Baxter International, St. Jude Medical and Stryker Corporation  as well as many others.

This is just a small sampling of major policy debates on deck for 2015, but they are all critical indicators relative to the cost of healthcare. At $10,000 per year per person (and rising), we need to do a lot more than bend the growth curve.


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Liz Bates's curator insight, May 11, 2015 11:45 AM

Very good at showing lots of data. But this could get confusing or out of control if the data is all over the place and hard to understand. This can work well if done right