Health Care Costs Grew More Slowly Than The Economy In 2012

Jan 6, 2014
Originally published on January 7, 2014 1:55 pm

Health care spending grew at a record slow pace for the fourth straight year in 2012, according to a new government report. But the federal officials who compiled the report disagree with their bosses in the Obama administration about why.

The annual report from the actuaries at the Centers for Medicare and Medicaid Services, published in the journal Health Affairs, found total U.S. health spending totaled $2.8 trillion in 2012, or $8,915 per person.

Health spending consumed 17.2 percent of the nation's gross domestic product, but that was slightly down from the previous year's 17.3 percent. And in a rare event, the growth rate of 3.7 percent was actually slower than that of the overall economy, which grew at a rate of 4.6 percent.

The report found several things that led to the slower spending increase, especially the residual effects of the recession.

But one thing that did not lead to slower growth, according to the authors, was the Affordable Care Act.

"The Affordable Care Act ...had a minimal impact on overall national health spending growth through 2012," the report said.

Instead, the law likely produced a small overall increase in spending for the first three years that the law was in effect, the actuaries say.

And the persistent slow growth in health spending, even a few years after the economy has begun to recover, is what you'd expect to see now, according to Aaron Catlin, deputy director of the National Health Statistics Group that leads the annual study.

"What we can tell you is that the period of stability is consistent with the historical experience," he told reporters at a briefing on the report.

In other words, health inflation has traditionally remained in check for at least a few years following a recession.

But the actuaries' view — that health spending is simply following historical trends — is not universal.

The White House struck back at the report's contention that the health law hasn't had an impact.

"We have already seen powerful examples of hospitals and other providers who have already begun to embrace changes to their practices to bring down costs in the wake of the Affordable Care Act," wrote White House health policy advisor Jeanne Lambrew in a blog post.

Other economists support the administration's contention that the law has had an impact on the current slowdown in cost increases.

"There's a big unexplained component," says David Cutler, a Harvard health economist who recently coauthored a study about the subject. "Even though slower economic growth has reduced spending, spending has fallen by even more than the slower economic growth would suggest."

In particular, says Cutler, Medicare spending, which by itself accounts for a fifth of the nation's health spending, has slowed dramatically. And Medicare spending is not traditionally tied to what happens in the rest of the economy.

"If you look historically, the link between how the economy is doing and what's happening to Medicare spending is very, very weak," Cutler says.

He thinks that changes made by the Affordable Care Act are affecting Medicare spending. "From reduced error rates in hospitals, to reduced rates of readmission for Medicare beneficiaries, to reduced payments to Medicare Advantage plans and hospitals ... [those] are a direct result of the Affordable Care Act," Cutler says.

The bottom line is no one really knows exactly why health care spending continues to grow slowly, and how much impact the Affordable Care Act is having on spending. But most policymakers agree on one thing — they hope the current trend will continue.

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Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

AUDIE CORNISH, HOST:

And I'm Audie Cornish. Health care spending grew at a record slow pace for the fourth straight year in 2012. That's according to a government report out today. But the people who compiled it disagree with their bosses in the Obama administration about why the growth of health spending slowed. Obama officials say some credit should go to the Affordable Care Act. But as NPR's Julie Rovner reports, government actuaries aren't so sure.

JULIE ROVNER, BYLINE: First, the good news, at least for those worried about health care inflation, from Micah Hartman of the Centers for Medicare and Medicaid Services' Office of the Actuary.

MICAH HARTMAN: Health care spending increased 3.7 percent in 2012, which was the fourth year of relatively low and stable growth.

ROVNER: In fact, the $2.8 trillion the nation spent on health care consumed 17.2 percent of the nation's economic output, which was actually down slightly from the year before. Why? Well, it was kind of a mixture of things, said actuary Anne Martin.

ANNE MARTIN: Our main findings included faster growth in hospital and physician and clinical services spending, and slower growth in prescription drug and nursing care facility spending.

ROVNER: Martin said one of the big downward drivers of spending was something called the patent cliff or the expiration of patents of some huge blockbuster prescription drugs.

MARTIN: Most notably Lipitor, Plavix, and Singulair lost patent protection in late 2011 and in 2012. This, in turn, led to the availability of lower cost generic versions of these drugs.

ROVNER: And lower spending on drugs overall. But one thing that did not lead to slower growth, according to the report being published today in the policy journal Health Affairs, was the Affordable Care Act. Said Martin...

MARTIN: There was minimal impact from the Affordable Care Act on aggregate national health expenditure trends.

ROVNER: In fact, for the first three years the law was in effect, the actuaries say its various provisions likely combined to produce a small overall increase in spending. And the persistent slow growth in health spending, even for a few years after the economy has begun to recover? Aaron Catlin, deputy director of the National Health Statistics Group that leads the annual study, says that's just what you'd expect to see about now.

AARON CATLIN: What we can tell you is that the period of stability is consistent with the historical experience.

ROVNER: Meaning health inflation has traditionally remained in check for at least a few years following a recession. But the actuaries' view - that health spending is simply following historical trends - is not universal. Many economists think this slowdown may in fact signify a structural change in the way healthcare's being delivered. David Cutler is a Harvard health economist and one of those who thinks this time may be different.

DAVID CUTLER: There's a big unexplained component which is that even though slower economic growth has reduced spending, spending has fallen by even more than the slower economic growth would suggest.

ROVNER: Medicare spending, for example, which by itself accounts for a fifth of the nation's health spending, has slowed dramatically. And Medicare spending is not traditionally tied to what happens in the rest of the economy, says Cutler.

CUTLER: If you look historically, the link between how the economy is doing and what's happening to Medicare spending is very, very weak.

ROVNER: But what is clearly impacting Medicare, he says, are changes made by the Affordable Care Act.

CUTLER: From reduced error rates in hospitals to reduced rates of readmission for Medicare beneficiaries to reduced payments to Medicare advantage plans and hospitals that are a direct result of the Affordable Care Act.

ROVNER: The bottom line is no one really knows exactly why health care spending continues to grow so slowly and how much impact the Affordable Care Act is having on spending. But most policymakers agree on one thing, they hope the spending slowdown will continue. Julie Rovner, NPR News, Washington. Transcript provided by NPR, Copyright NPR.