Reform Update: Health spending for 2013 will be sluggish but will pick up in 2014

Health spending in the U.S. continued to rise at a historically low rate last year and will remain weak this year as the economy continues to drag, blockbuster drugs go off patent and households are responsible for a growing share of medical bills, federal projections show.

U.S. health spending increased 3.9% last year for the fourth straight year and is projected to grow 3.8% this year, according to federal economists and actuaries who published the estimates online Wednesday in the journal Health Affairs.

Health spending as a percentage of the economy remained at 17.9% last year and is projected to inch upward to 18% this year.

The projections extend a streak of sluggish health spending growth that began with the Great Recession and coincided with a national debate on healthcare reform ahead of the 2010 Patient Protection and Affordable Care Act. Soft spending growth has provoked debate over how much of the slowdown could be a result of stagnant wages and unemployment and what might be more efficient care in response to new public policy.

David Cutler, an economist at Harvard University, described the federal estimates as interesting. “The actuaries do not think the world has changed in any fundamental way,” he said in an e-mail. “This puts them somewhat at odds with a number of recent papers.”

Recent research by Cutler attributed about one-third of the slowdown to the economy and that 55% was driven by greater efficiency, fewer brand name drugs and higher cost-sharing for patients with private insurance.

“We should have more clues in the next couple of years,” Cutler said.

Based on the clues available now, the CMS actuaries say health spending will accelerate as the economy recovers and more Americans get health insurance beginning next year under the Affordable Care Act.

Next year, they project spending will increase to 6.1%. The actuaries note that newly insured patients will be younger than the currently insured population, which means they will likely require less hospitalization but use more primary care and prescription drugs.

However, Gigi Cuckler, an economist with the CMS office of the Actuary, said the uptick still won't return to the pre-Recession pace. Between 2012 and 2022, the average annual growth in health spending will reach 5.8% compared with 7.4% between 1990 and 2006.

Health spending is projected to account for one-fifth of the economy by 2022. Yearly economic growth, on average, will lag health spending by 1 percentage point through that year.

The actuaries' projection for 2012 health spending was revised down from 4.2%, the figure in last year's version of the annual report.

Sean Keehan, a CMS economist, said that's largely because drug spending did not grow as quickly as expected. Some blockbuster drugs lost patent protection in the last few years and high-priced specialty drug spending did not grow as high as previously projected. Last year's projected drug growth for 2012 was 2.9%. The latest projection shows a drop of 0.8% for 2012.

Walgreen Co. employees next year will be among a new wave of consumers asked to comparison shop (often for the first time) for health insurance.

The drug store chain announced it would no longer provide health benefits to 160,000 workers but instead give employees credit to buy insurance in an exchange, or marketplace. The exchange is privately run and was launched last year as a new option for large employer to offer workplace health benefits. (Small employers and individuals can buy insurance starting in October in state- or federally run exchanges created by the Patient Protection and Affordable Care Act.) Sears and Darden Restaurants will also enter the private exchange operated by Aon Hewitt, Aon said.

The shift—which follows recent announcements by other major companies of a similar switch for retirees—underscores a retail push underway in healthcare. That could increase competition among hospitals and medical groups to offer the lowest price or the best quality. But the trend may also add to household financial strain should insurance premiums rise faster than employers' cash or when health plans offset lower premiums with high deductibles or costly co-insurance.

Walgreens workers will have three high-deductible plan options.

Meanwhile, a newly released survey found few workers expect their employer to stop offering insurance. An online survey in June of roughly 1,000 workers by the Employee Benefits Research Institute and Greenwald & Associates found that 93% said they were extremely, very or somewhat confident that their employers or union would continue to offer benefits.

Follow Melanie Evans on Twitter: @MHmevans