Healthcare Business News

Outlook 2014: Newly insured may drive up 2014 spending, but delivery reforms may keep it in check

By Melanie Evans
Posted: January 11, 2014 - 12:01 am ET

This year, millions of newly insured Americans are expected to fuel faster growth in health spending, which has notably slowed since the Great Recession hit.

The insurance expansion under the Patient Protection and Affordable Care Act is not the only reason to expect healthcare spending growth to tick upward, according to some experts. But they also see signs of providers achieving greater efficiencies that could help moderate cost growth, as well as indications that higher consumer cost-sharing in health plans has dampened demand.

Economists found evidence for both arguments in the most recent federal estimates of U.S. health spending in 2012 released last week, which showed growth near the lowest recorded in a half century of data collection.

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The nation spent $8,915 per person on healthcare in 2012, an increase of 3.7% from the prior year and in line with 3.6% growth in 2011 and 3.8% in each of the two previous years. Atypically, 2012 growth was below the overall increase in GDP. In 2008, the first full year of the recession, healthcare spending grew 4.7%, well below the 7.2% annual average between 2000 and 2007.

The CMS economists who produced the numbers cited the sluggish economy for the slow growth, suggesting an acceleration with the economy gaining strength in 2013 and 2014. Projections released in October put spending growth at 6.1% in 2014 and 5.8% in 2015, largely as a result of economic rebound and spending by the newly insured.

Charles Roehrig, director of the Altarum Center for Sustainable Health Spending, said he thinks the economic recovery and the influx of newly insured Americans will boost health spending this year. The economy accounted for about two-thirds of the recent health spending slowdown, according to an Altarum Institute report published earlier this year.

Jonathan Skinner, a health economist and professor at Dartmouth College, said healthcare industry job growth potentially signals a cost speedup. He cited an Altarum Institute analysis of employment in late 2013 that reported above-average hiring and a 12% increase in payrolls since the recession.

Dana Goldman, director of the University of Southern California's Center for Health Policy and Economics, found mixed indicators in the new 2012 estimates for healthcare spending growth in coming years. Acceleration in spending for hospitals and physicians, which increased 4.9% and 4%, respectively, suggest that consolidation may give providers more leverage to raise prices. But he thinks the persistence of the slowdown for several years suggests factors other than the recession are involved.

Some experts note that Medicare per capita spending growth also has slowed, and Medicare beneficiaries are less affected by the economy than non-elderly Americans in terms of their healthcare utilization.

Michael Chernew, a Harvard University health economist, said delivery system reforms likely have contributed to the slowdown. Providers are “more serious” and “more committed” to delivering more cost-effective care, he said.

Follow Melanie Evans on Twitter: @MHmevans

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