Health-Care Costs are Dropping, but Why?

by webadmin on November 25, 2013

HC$-thumb1The information coming across the health-care news wires over the last several weeks has been confusing, befuddling, and aggravating at best. With all of the issues related to the health-care reform roll-out, it’s tough to cut through the speculation and nail down the definitive truth.

If definitive truth even exists in health care today.

Nevertheless, last week, an article by Kelly Kennedy of USA Today examined a recent Council of Economic Advisers report, which concluded that “health-care spending has risen by the lowest rate ever recorded.” In fact, health-care inflation is at its lowest in 50 years, the report said, and these “[r]educed health-care costs for employers could lead to 200,000 to 400,000 new jobs per year by the second half of the decade.”

Jason Furman, chairman of the Council of Economic Advisers, speculated, “If just half the recent slowdown in spending can be sustained, health-care spending a decade from now will be $1,400 per person lower.”

There are several factors that have contributed to this lowered spending, none of which are conclusive to the situation or of exclusive influence on the situation. In fact, whether or not you credit these factors is actually based on which political party you favor.

For example, Republicans generally blame the slowed economy for lower health-care costs, which they frame more as a growth issue than anything else. Democrats look at lowered health-care costs and they credit the Affordable Care Act. Furman said both viewpoints have some truth behind them.

The White House, wasting no time in trying to recover its mojo in the wake of the many travails plaguing the ACA roll-out, also credited cost-sharing as playing a factor in lowering costs.

Furman agreed, pointing to the fact that insurance deductibles “increased from 2006 to 2013,” but the pace of that increase slowed between 2010 and 2013. “It didn’t accelerate after the Affordable Care Act passed. In fact, it decelerated,” he said.

Kennedy writes, “Because of cost reductions, the Congressional Budget Office reduced Medicare and Medicaid spending projections in 2020 by $147 billion since 2010, the report noted. One key area in which the law helped drive costs down, the report said, are the provisions that allow Medicare to reduce overpayments to providers and health plans.”

Furman further observed that “fines for hospitals that readmit Medicare patients within 30 days of their release and the increased use of accountable care organizations” also helped drive down costs.

However, a September actuaries report from CMS concluded these lowered costs wouldn’t last, saying “health spending would increase after 2014 because of good economic conditions, coverage expansion in the law, and the aging population. From 2012 to 2022, they expected national health spending to grow at an average rate of 5.8 percent.”

Perhaps MIT economist Jonathan Gruber had the best perspective of anyone in the article. Yes, lowered health-care costs is encouraging news, he said, but we still don’t know the real reason for these lowered costs. Therefore, it’s best, he said, to adopt a wait-and-see attitude as the ACA and its roll-out are fully revealed.

Admittedly, much of this is political claptrap. Too many people are trying to gain “something” from the health-care news of the day. From your perspective as health-care executives, are your costs being lowered? If so, why?

Is it the measures you’ve enacted because of reform? Or is it a reflection of an economy in which you simply don’t have the resources or reimbursements to invest in care as you once were able to?

-by Pete Fernbaugh

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