Why Has the Increase in Healthcare Spending Costs Slowed?

by Dave Schuler on March 14, 2014

I think that Dana Goldman and Sarah Axeen’s post at Forbes can be summarized like this:

  1. The rate of increase in healthcare spending has slowed over the last couple of years.
  2. The slowdown began before the ACA was enacted.
  3. The slowing of the rate of increase was due to changes in Medicare.
  4. Those changes had nothing to do with the PPACA.
  5. The administration thinks so, too.

That would fully support the point I’ve been making for some time: the “doc fix” has promoted faster increases in healthcare spending than would otherwise have been the case.

However, I think they go off the rails here:

If—as the Administration argues—the only way to slow spending is through spillovers from Medicare to the private market, then we could have done without all the mandates, insurance exchanges and the like. To be fair, there is more to the ACA than slowing spending. It is supposed to cover the uninsured. But given the limited enrollment success to date, the Administration seems to be side-stepping that issue.

The Obama Administration had more eggs to fry than decreasing healthcare costs and some have even argued that decreasing healthcare costs was just a pretext for their other objectives. The most obvious objective is that they wanted more people to have healthcare insurance. Whether they’ve accomplished that remains to be seen. We’ll know soon enough. If the administration decides to make the data available.

At any rate we’ll soon be able to test their hypothesis:

Finally, and most important, 2014 will see an increase in spending as newly insured individuals with generous coverage seek new services. As a projected 7 million individuals gain insurance coverage through the health insurance exchanges and 9 million through Medicaid expansions, spending on health will grow at faster rates. The most recent CBO projections show new direct government spending of $23 billion for subsidies and other related spending. That does not include private and out-of-pocket spending by individuals on these services. The slowdown in spending trumpeted by the Administration, while important, will be short-lived. The lower Medicare spending growth and hopes of spillovers to the private sector cannot offset the growth in spending that will result from these newly insured individuals.

As I’ve been saying, we’ve had insurance reform now we need healthcare reform.

{ 4 comments… read them below or add one }

Ben Wolf March 14, 2014 at 3:30 pm

You won’t get health care reform unless the insurance industry is effectively done away with.

The reason I don’t think market-based solutions can work is that health insurance is a textbook example of a rentier industry: at point A we have the patient, at point C we have the health care provider and between them at point B we have an insurer collecting rents from a position which forces everyone to deal with them. Those insurers add nothing, not expanded access nor improved quality of care. They simply siphon off income flows without contributing.

Health care reform is the last thing they want.

... March 14, 2014 at 4:16 pm

Ben, I don’t see how what you are asserting is true when so much of the healthcare in the country is provided by government or self-insuring employers.

Insurance companies get used by self-insured employers for administrative reasons and for access to those insurers’ networks, along with the discounted rates of those networks. And at least with the company I last worked for, the administrative fees paid to the insurance company were a pittance of the total healthcare spend. Sure, it was a rent, but it was a rent that was cheaper than hiring a bunch of people to do it ourselves.

... March 14, 2014 at 4:25 pm

And having had to look at the details of certain cases, I would guess more money was spent for hospital administrative overhead than was spent on paying the insurance company that handled the paperwork on our side.

(Don’t worry, there were no HIPPA violations. There are companies that take the data from the insurance company administrators, scrub it free of data that indicates who had what, and will then provide the scrubbed data back to the self-insuring entity for study purposes. I must confess, I do mot at all miss going through data to study which conditions were doing better or worse from year to year. Ugly, tedious work extracting useful data about the particular misfortunes of others. Working on life insurance and retirement is much less unpleasant.)

Ben Wolf March 14, 2014 at 4:38 pm

Insurance companies get used by self-insured employers for administrative reasons and for access to those insurers’ networks, along with the discounted rates of those networks.

That’s exactly the problem. Insurers spend 20-25% of revenues on administrative overhead, something governments do for 5-7%. And by definition, providing “access” to a network means exclusionary practices limiting health choices. Other systems allow access to any physician in a given country with much lower price and more efficient administration.

Insurers act as gatekeepers, not enablers.

Leave a Comment

Previous post:

Next post: