Gov't forecasts rising health care inflation

The nation's respite from troublesome health care inflation is ending, the government said Wednesday in a report that renews a crucial budget challenge for lawmakers, taxpayers, businesses and patients.
AP Wire
Sep 4, 2014

Economic recovery, an aging society, and more people insured under the new health care law are driving the long-term trend.

Projections by nonpartisan experts with the Health and Human Services department indicate the pace of health care spending will pick up starting this year and beyond. The introduction of expensive new drugs for the liver-wasting disease hepatitis C also contributes to the speed-up in the short run.

The report from the Office of the Actuary projects that spending will grow by an average of 6 percent a year from 2015-2023. That's a notable acceleration after five consecutive years, through 2013, of annual growth below 4 percent.

Although the coming bout of health-cost inflation is not expected to be as aggressive as in the 1980s and 1990s, it will still pose a dilemma for President Barack Obama's successor. Long term, much of the growth comes from Medicare and Medicaid, two giant government programs now covering more than 100 million people.

The United States is expected to spend more than $3 trillion on health care this year, far above any other economically advanced country. Yet Americans are not appreciably healthier, and much what they spend appears to go for tests and treatments of questionable value. Fraud also siphons off tens of billions of dollars a year.

Because health care spending is so high, shifts of a couple of percentage points have significant economic consequences. Health care inflation has recently been in line with overall economic growth, keeping things manageable.

As spending rebounds, health care again will start consuming a growing share of the economic pie, crowding out other worthy priorities. From 17.2 percent of the economy in 2012, health care is expected to grow to a 19.3 percent share by 2023, the report said.

"The period in which health care has accounted for a stable share of economic output is expected to end in 2014, primarily because of the (health care law's) coverage expansions," it concluded.

Yet if Obama's Affordable Care Act is an immediate trigger for rising costs, the analysts who produced the report said it is not the only factor. It's probably not the most important one when placed next to a recovering economy and an aging population. Traditionally, the state of the economy has been the strongest driver of health care spending.

The report estimated that 9 million uninsured people gained coverage this year as the health care law's big coverage expansion got underway, and another 8 million will be added next year.

More people insured translates into higher demand for medical services and more spending, so White House claims of dramatic savings from the health law were always suspect. But the fiscal doomsday warnings from "Obamacare" detractors have not materialized, either.

Part of the reason seems to be a push-and-pull effect within the health overhaul. Obama's insurance expansion increases spending, but Medicare cuts under the same law help keep other costs down. And Congress reinforced Obama's Medicare cuts with a round of its own during recent budget battles.

The analysts said they did not see much evidence that payment reforms encouraged by the health law are having an impact on costs yet. Medicare is experimenting with how it pays hospitals and doctors to reward efficiency while maintaining or improving quality.

The White House may take comfort that the report does not foresee a return to inflation rates of 7 percent a year or more. "We are not projecting that growth will get back to its rapid pace of the '80s and '90s," said Sean Keehan, a senior economist who worked on the report.

Again, factors other than the health care law seem to be involved. For example, employers have significantly increased deductibles and copayments, so working families must pay more out of their own pockets when they use medical care.

The report was published online by the journal Health Affairs.

Among other findings:

— Medicare and Medicaid will drive costs from 2016-2023, with average annual increases of 7.3 percent and 6.8 percent respectively. For Medicare, it's partly due to the retirement of the baby-boom generation, while Medicaid will see higher use of services by elderly and disabled beneficiaries.

— The federal, state and local government share of health care spending will keep steadily rising, from 44 percent in 2012 to 48 percent in 2023. The share of costs covered by businesses will decline from 21 percent to 19 percent.

Online:

Health Affairs - http://content.healthaffairs.org/lookup/doi/10.1377/hlthaff.2014.0560

Comments

Vladtheimp

Once again the Associated Press is operating as Obama's butt-boy. Nowhere in the article does it note that Obama sold Obamacare on the promise it would REDUCE health care costs - in fact, as late as January of this year, White House health policy adviser Jeanne Lambrew wrote“For years, healthcare costs in America skyrocketed, with brutal consequences for our country,” “The Affordable Care Act, for the first time in decades, has helped to stop that trend.”

From reading the AP article you would never know that what the non-partisan government actuaries really said is:

“The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter,”
http://dailycaller.com/2014/09/0...

Relying on the AP for real news is like relying on, respectively, Media Matters, Daily Kos, or the Onion (or press releases from the regime).

Lanivan

Paul Krugman, the Pulitzer Prize economist, has a far more positive message. In a recent NYTimes article (chosen as it makes the cut with your list), he says this:

"But a funny thing has happened: Health spending has slowed sharply, and it’s already well below projections made just a few years ago. The falloff has been especially pronounced in Medicare, which is spending $1,000 less per beneficiary than the Congressional Budget Office projected just four years ago.

First, our supposed fiscal crisis has been postponed, perhaps indefinitely. The federal government is still running deficits, but they’re way down. True, the red ink is still likely to swell again in a few years, if only because more baby boomers will retire and start collecting benefits; but, these days, projections of federal debt as a percentage of G.D.P. show it creeping up rather than soaring. We’ll probably have to raise more revenue eventually, but the long-term fiscal gap now looks much more manageable than the deficit scolds would have you believe.

The third big implication of the Medicare cost miracle is that everything the usual suspects have been saying about fiscal responsibility is wrong.

What’s the moral here? For years, pundits and politicians have insisted that guaranteed health care is an impossible dream, even though every other advanced country has it. Covering the uninsured was supposed to be unaffordable; Medicare as we know it was supposed to be unsustainable. But it turns out that incremental steps to improve incentives and reduce costs can achieve a lot, and covering the uninsured isn’t hard at all.

When it comes to ensuring that Americans have access to health care, the message of the data is simple: Yes, we can."

The Medicare Miracle. http://www.nytimes.com/2014/09/0...

Vladtheimp

LOL! You choose to believe the many times discredited liberal economist Paul Krugman over Obama's own actuaries - what a HOOT!

Lanivan

??? I'm merely providing another interpretation of the data, you know like how conservatives take a single weather episode and use it to debunk decades of research.

Yes - Paul Krugman is a liberal economist, but he is a highly respected one, and almost always right when compared with conservative economists, especially those promoting austerity and supply-side economics. Perhaps you'll be so kind as to provide examples of his discredited theories? (after you get done laughing, of course)

Vladtheimp

??? I'm merely providing another interpretation of the data, (So you know more than over Obama's own actuaries) . . . . How Obama-like of you - Obama "“I think that I’m a better speechwriter than my speechwriters. I know more about policies on any particular issue than my policy directors. And I’ll tell you right now that I’m gonna think I’m a better political director than my political director.”

We've now seen he knows more than his military advisers - maybe you can share with us how much more you know than they do, since you know more than his health care actuaries.

Lanivan

I quoted from an op-ed piece. I certainly don't claim to know more than government actuaries, that's a silly point to beat to death. My link shows a balanced way of looking at the data.

So apparently there are no so-called discounted Krugman theories?

skyking007

Republican greed will make health care prices go up. A single payer system is needed. The affordable care act is working as planed and would bring prices down but has been fought at every level, because the greedy don't want to give up their spoils. Lives are being saved and people with pre-existing conditions now have insurance. Non of the matters to the heartless Republicans. All the love is Money.

Straightjacket

You can give me your money, thank you.

skyking007

Straightjacket speaks like a true Republican. I speak about people I know, that have insurance, that could not get coverage before, at a affordable rate. I realize that I live in a republican district and there are many here that are blind to the suffering of others, but that does not make it right. I was a Republican for over fifty years, but could not stand the change when the haters took over. People who don't care about their fellow citizens are wrong no matter how many of them there are. And the call themselves the Family Values Party. It is really sad to see the direction this Country is headed.

ddv

What about many of my friends/family who are in their late 20's and early 30's who can't afford health care but don't qualify for the Affordable Care Act? Therefore they still are uninsured as of Aug 2014. No preexisting conditions.

RiverViews

Skyking I'm glad to hear about your compassion. So I assume you are going to ask the politicians to take an additional 5% of your income to pay for this?? It's always easy to throw these ideas out there when someone else is going to pay for it.

Lanivan

The insured have been paying for the uninsured, directly or indirectly, for decades, through exploding health care costs and health insurance premiums, and billions of dollars paid annually to hospitals for uncollected costs when they are required by law to treat the uninsured or those too poor to pay.

It's just that the landscape has changed, and the deadbeats who have refused to take personal responsibility for their health insurance are mandated to do so, and those who are truly too poor to afford it now have MedicAid expansion programs to help them (if their state government cares enough to offer it).

skyking007

I have never complained about taxes. Back when I was making a Thousand dollars a week take home, I wondered why they quit taking out the Social Security tax. I worked at Reynolds metals, twelve hours a day Seven day a week for years on end. Sometimes it was 16 hours for Saturday and Sunday. Taxes put people to work, they build roads and repair Bridges. They are what we need to make this country great. The more the bottom people have the better the economy grows. Poor people spend their money to survive. Rich people send it off shore.

Straightjacket

Clueless.

Lanivan

Apparently you are referring to yourself. Skyking makes perfect sense to those who can think rationally, objectively, and with common sense.

Tri-cities realist

Seriously Lanny, you may want to re-think riding the coattails of skyking, s/he appears to be logically challenged.

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