The Simple Reason — Maybe? — Why Health Costs Have Slowed Down

U.S. health care spending is growing at historically low levels and pundits are theorizing all kinds of reasons why.

Maybe it’s because health care providers are making new efforts to curb utilization, such as reducing emergency department visits and limiting diagnostic tests. It could be due to insurers further shifting costs to patients. Or maybe it’s because — as the White House has suggested — reforms contained in the Affordable Care Act are taking effect.

But there’s probably a one-word explanation: recession.

“Far and away it is related to economic issues,” Dr. Glen Stream, president of the American Academy of Family Physicians,” told the Associated Press.

Cost Slowdown

According to CMS actuaries, U.S. health care spending increased by 3.8% in 2009 and 3.9% in 2010 — the lowest annual growth in the 50 years since the agency began tracking the data. And while 2011 spending has not yet been calculated, CMS economists expect a similar increase of about 4%, which will continue through 2013.

Health wonks have spent months debating the reasons for the slow growth — and as the Washington Post‘s Sarah Kliff notes, that discussion won’t be resolved any time soon. Even CMS’ actuaries are hedging their bets.

“We think this is due to the recession,” CMS economist Sean Keehan told Kliff, “but not just that. … We think consumers are being more cautious about how much health care they use, too.”

Some heavy hitters are making a strong case that the low growth is driven by in-industry reforms. Harvard’s David Cutler notes that private payers are passing more costs to patients, who are “thinking twice about what health care they actually need.” Karen Davis, the retiring head of the Commonwealth Fund, suggests that “a lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”And the Urban Institute’s Robert Reischauer points to new provider arrangements and an emerging generation of cost-conscious physicians.

But the recession may be the driving force behind the slowdown — and for evidence, just look in the history books.

Finding Precedents

In the late 1980s, U.S. health costs were growing at nearly triple the rates that they are today; for example, health spending surged by 11.9% between 1989 and 1990.

But then came the 1990-1991 recession — and the health care cost curve began a striking decline. National health spending growth fell to 7.4% by 1992 and 5.6% in 1993.

“There is evidence in the literature that health spending does not completely march to its own drummer,” Princeton professor Uwe Reinhardt recently wrote, “but instead tends to rise and fall somewhat with the rest of the G.D.P., albeit with a lag of one to two years.”

Take that 1990s’ recession’s impact on Canada. In 1992, the national unemployment rate peaked at more than 11%, even as health care costs kept growing. But from 1993 through 1996, Canada actually saw negative health cost growth.

Several other Western nations also saw flatlining health care costs in the mid-1990s, as the recession touched their economies, too.

Looking Ahead

According to Stephen Heffler, director of national health statistics for CMS’ Office of the Actuary, “it’s too early to say that something significant and dramatic and permanent has occurred.”

And one way or another, it seems inevitable that health cost growth will resume, so long as the economy bounces back, economists suggest — and regardless of what happens with the Affordable Care Act.

If the law stands, CMS actuaries expect health care costs to jump by 7.4% once most provisions of the federal health reform law are implemented in 2014, including a major expansion of health coverage. Prescription drugs spending will increase by 8.8%, and spending on routine physician visits by 8.5%.

But if the law falls, there will be fewer cost-cutting reforms scheduled to come online. Minus the individual mandate — and without the ACA’s reforms to improve the health care system’s efficiency — demand for cost-drivers like ED services will only grow, Moody’s recently warned.

So rather than a long-term trend toward cheaper health care, we may be gliding through a recession-induced bubble. And that doesn’t deserve a glass of bubbly.

“Nothing in the history of health spending in the United States suggests that this is the time to break out the Champagne to celebrate,” Reinhardt concludes.

Here’s a look at what else is making news in health reform.

Eye on the Courts

  • Democratic and Republican lawmakers, the Republican National Committee, the Obama administration and the health insurance industry this week are holding meetings to coordinate their political responses to a Supreme Court ruling on the overhaul (Morton, Omaha World-Herald, 6/18). GOP lawmakers plan to force a vote to repeal the health reform law if any provisions are upheld by the high court, though they do not plan to offer replacement measures until at least after the November elections (Espo, AP/Sacramento Bee, 6/17). Meanwhile, Many Democratic lawmakers and staff say they have not received guidance from the Obama administration on how to respond if the Supreme Court strikes down all or part of the overhaul (Allen/Raju, Politico, 6/15).
  • Justice Ruth Bader Ginsburg in a speech at the American Constitution Society said she expects “sharp disagreements” between justices this week and next week as “many of the most controversial cases remain pending,” including the health reform law (Geman, “Healthwatch,” The Hill, 6/16). Meanwhile, Passages in a new book by Justice Antonin Scalia to be released this week might indicate that he did not rule in favor of the Obama administration in the health reform law case (Liptak, New York Times, 6/15).

Inside the Industry

  • The three largest health insurers in Massachusetts — Blue Cross Blue Shield of Massachusetts, Harvard Pilgrim Health Care and Tufts Health Plan — pledged to continue to offer some of the federal health reform law’s popular benefits, regardless of how the Supreme Court rules on the constitutionality of the law. The announcement comes after three of the nation’s largest insurers — Aetna, Humana and UnitedHealth Group — made similar declarations last week (Conaboy, Boston Globe, 6/18).
  • While publicly supporting passage of the federal health reform law, America’s Health Insurance Plans in 2009 and 2010 donated a total of $102.4 million to the U.S. Chamber of Commerce to support efforts opposing health reform. Because AHIP and the chamber are not legally required to disclose where they are sending or receiving money, the insurers group was able “to publicly stake out a pro-reform position while privately funding the leading anti-reform lobbying group in Washington,” according to National Journal‘s “Influence Alley” (Frates, “Influence Alley,” National Journal, 6/13).

In the States

  • Washington state could offer a glimpse into what the country could experience if the Supreme Court strikes down the individual mandate in the federal health reform law. In 1993, the state passed a law guaranteeing all residents access to health insurance, including those with pre-existing conditions, and requiring them to purchase coverage. However, the requirement was overturned by the state’s legislature two years later, before it could take effect. Still, the guaranteed-access provision was upheld. As a result, premiums in the state increased and enrollment declined, because residents purchased coverage only when they needed it. By 1999, all 19 insurers in the state’s individual market left or stopped writing policies, in what officials called a “death spiral” (Kliff, Washington Post, 6/16).
  • Wisconsin Gov. Scott Walker (R) said recently that even if the Supreme Court upholds the overhaul, the outcome of the November elections will guide the state’s plans for implementation (Bivins, USA Today, 6/14).
  • Just seven states and the District of Columbia are expanding Medicaid coverage ahead of new requirements in federal health reform law. The overhaul offers states an opportunity to receive additional federal Medicaid funding before the law is fully enacted, and just California; Colorado; Connecticut; Washington, D.C.; Minnesota; Missouri; New Jersey; and Washington state have opted for early expansions (Lubell, American Medical News, 6/11).

On the Campaign Trail

  • Presumptive Republican presidential candidate Mitt Romney last week outlined a plan to replace the federal health reform law if it is struck down by the Supreme Court, and reiterated his pledge to repeal the law if it is upheld, the Los Angeles Times reports (Finnegan, Los Angeles Times, 6/12). In remarks at a campaign rally in Florida, Romney said he would transform the nation’s health care system to resemble a “consumer market,” which would operate on free-market principles, rather than a “government-managed utility.” He also said his reform plan would divert federal Medicaid money and other federal funding to states and make them responsible for covering uninsured residents (Rucker, Washington Post, 6/12).

On the Hill

  • Democrats on the Senate Appropriations Committee last week staved off attempts by Republicans to use the fiscal year 2013 Labor, Health and Human Services bill to curb funding for the federal health reform law. The typically bipartisan committee voted 16-14 to approve the $18.8 billion spending bill, $8.8 billion more than the House is expected to provide in its bill, which could be marked up as early as next week (Wasson, “On The Money,” The Hill, 6/14). Democrats rejected a handful of proposed amendments that would have eliminated or shifted the law’s funding and prevented the hiring of new employees to implement the overhaul (O’Donnell, National Journal, 6/14).
  • Although Republicans have acknowledged that they need to be prepared to respond to the Supreme Court’s ruling on the constitutionality of the federal health reform law, the GOP has not finalized a plan that would satisfy both conservatives and moderates. An email from Rep. Steve King (R-Iowa) to other GOP lawmakers stated, “Whatever the decision, hold that [the overhaul] is unconstitutional,” adding, “Praise the court if they find [it] unconstitutional.” If the law is upheld, Republicans have indicated that they will immediately introduce legislation to repeal it. If the law’s individual mandate is struck down and the rest of the law is allowed to stand, the GOP will try to eliminate the rest of the overhaul (Sherman/Allen, Politico, 6/12).

Studying Its Effects

  • Discounts intended to close the coverage gap in the Medicare Part D prescription drug benefit could end if the Supreme Court strikes down the federal health reform law, a representative for the drug industry said Tuesday. According to CMS, more than 5.1 million Medicare beneficiaries have saved more than $3.2 billion on prescription drugs between March 2010 and December 2011 through the discounts (Jaffe, Kaiser Health News, 6/12).

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