fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

Category Archives: spending-slowdown

The Historic Spending Slowdown & the Consumer Paradox: New Study Explains Two Counter-Intuitive

July 23, 2014 | FAH Hospital Policy Blog

Category: FAH News, Publications, Spending Slowdown

A new report from the health care economics consulting firm Dobson|DaVanzo examines a critical question that has emerged despite the enduring national health care spending slowdown: Why do consumers continue to feel the pinch of higher health care costs at a time of record low growth in national health care spending and pricing?

The study, commissioned by the FAH, assesses the latest evidence of two breaking trends—the historic spending and price slowdown that continues to endure, as well as a paradigm shift in health care insurance coverage. Despite official statistics confirming the spending slowdown and mounting evidence that this trend is driven largely by a combination of structural factors, the study shows consumers are paradoxically experiencing a rising burden in terms of personal spending on their health care. The Dobson|DaVanzo analysis further examines how a paradigm shift in health plan benefit design is a major component of this “consumer paradox.”

The National Landscape: The Spending Slowdown Continues in 2014

This July, the Bureau of Economic Analysis (BEA) released its Q1 findings on consumer health care spending, which declined nationally by 1.4%. These findings mark the largest decrease in national health care spending in 30 years. This BEA data disproved earlier estimates of a large spending increase, and quelled claims by some who were quick to announce that the spending slowdown had ended.

The enduring slowdown is further supported by new evidence, including:

Medicare per beneficiary spending rates continue to decline so far in 2014, to -3.4%;

Hospital price growth continues its decade-long decline, with an annualized .9% increase in 2014 based on data to date.

These data points reaffirm the enduring nature of the spending slowdown in health care, driven in large part by structural changes occurring across the industry. “Hospitals continue to work diligently to increase the value of patient care, and are encouraged by the enduring spending slowdown,” said Charles N. Kahn III, President and CEO of the Federation of American Hospitals. “This slowdown has resulted in massive savings to Medicare and is accompanied by real moderation in health care pricing growth.”

And, an ongoing trend like this generates further Federal savings: CBO has continued to revise—and lower—its estimates of Medicare and Medicaid spending by well over $1 trillion since 2010. In March, Dobson|DaVanzo estimated that a sustained spending slowdown could yield an additional $900 billion in Medicare savings through 2024.

The Consumer Paradox: Why Are People Spending More of their Money on Health Care?

Despite the recent good news and statistics on national health care spending, the experience consumers perceive is quite the opposite. In recent surveys, 58% of Americans believed health care costs for the nation were growing faster than usual. The Federation commissioned this report to better understand the root of consumer sentiments and examine whether the perception of increasing personal health care spending was in fact the reality for consumers.

This consumer paradox was something Dobson | DaVanzo noted in their first examination of the spending slowdown in 2013.

“While the data show overall health care spending is slowing, consumers may well be struggling with their own reality of difficult out-of-pocket costs as they seek and receive the personalized health care they and their families need. To the degree individuals are feeling that pinch, it is important to note those costs are driven…more by decisions by employers and other payers to impose on those with coverage, higher out-of-pocket costs or premium sharing expenses.”

In their new study, Dobson|DaVanzo find benefit plan design has undergone a striking structural change of its own over the past few years. This change has created an environment in which health care coverage risks are shifting more to the consumer. Consumers are seeing this risk shift in plan design through a number of ways, which all lead to significantly higher out-of-pocket (OOP) and premium costs.

The change in benefit design has been swift and steady, touching the majority of employer-based coverage. According to the study, 77% of companies have increased cost-sharing through a combination of higher deductibles, co-payments, or premium contributions.

This change is occurring in tandem with a period of modest wage growth, which exacerbates the burden of the risk shift on consumers. Worker premium contributions have increased 114% from 2002-2013, while the average worker’s income has increased by 31%. In a span of just over 10 years, workers’ contributions to health care premiums have grown at almost 4 times the rate of their income.

“It is unfortunate that consumers with employer-paid coverage are experiencing significant increases in cost and premium sharing despite the fact that trends in price and cost growth continue to moderate,” Mr. Kahn added.

Much of the evidence from the study outlines significant changes in insurance coverage across a short time span:

* From 2006-2013, the average deductible for family coverage increased more than 75%, an increase of nearly $1,000.

* In that same span, the number of workers with high-deductible health insurance plans increased more than 5 times, from 4% to 26%, with the typical plan deductible totaling more than a family’s available savings.

* Out-of-pocket maximum limits are growing – half of families enrolled in plans have out-of-pocket limits exceeding $6000, a 32% increase from 2010 to 2013.

* Employees’ share of medical costs (premium + OOP) grew by 42%—from $6,824 in 2009 to $9,695 in 2014.

Clearly, the consumer experience in health care has run against the national spending slowdown trend, in what appears to be a growing dichotomy. Slow wage growth adds to the strain consumers experience from the risk shift associated with the changes in benefit plan design. When it comes to personal health care spending, the perception matches the reality for consumers, who are spending more for care.

Dobson | DaVanzo conclude:

“The consumer paradox, then, is the uneasy reconciliation of a historic slowdown in the growth of overall spending on health care—including the growth of health care as well as hospital prices—with the reality of stagnant wages, increasing worker contributions to premiums, high deductibles, and out-of-pocket maximum limits that exceed the average family’s savings.”

Policy & The Paradox: Implications for Policymakers

For reasons revealed by the Dobson|DaVanzo study, the consumer paradox is real. From the policy perspective, there are clear present and future benefits to consumers, payers and providers if we stay the course. The structural changes we are seeing as part of a transforming health care model have already succeeded in bending the cost curve well beyond expectations. As health care savings accrue over time through slower growth, the benefits we are experiencing at the national level will continue to reach consumers through slower premium growth and slower health care price growth (which is already at near-record lows).

“Truth be told, consumers, government programs and employers are all benefitting from the national spending slowdown,” Mr. Kahn said. “Policymakers should be wary of disturbing this with further action, and should encourage the health care marketplace to continue adapting, innovating and implementing the structural changes already underway.”

Further, the structural changes to the health care model that are driving this trend are creating an improved health care system for consumers in the process, and we are only in the early stages of this transformation. Therefore, it is imperative that policymakers protect the spending slowdown. Consumers are the ultimate beneficiaries of a more efficient, higher quality health care system.

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New BEA Numbers Upend Estimates of Health Care Spending Growth

June 27, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown

The public debate on the direction that health care spending is headed in the United States recently has been fueled by estimates of a sharp uptick in spending beginning in the 4th quarter of 2013. The predicted uptick, when taken out of context of the four years of historically low growth rates in national health care spending, predictably inspired doom and gloom amongst some in the health care space. However, new numbers from the Bureau of Economic Analysis (BEA) turn these preliminary estimates and the corresponding “Chicken Little” predictions on their heads.

The BEA said Wednesday that spending actually dropped by an annual rate of 1.4% in the first quarter of 2014 – a complete about-face from earlier estimates. This extreme level of downward adjustment came as a surprise even to those who were skeptical of the estimated jump. Sarah Wheaton of POLITICO PRO reports that the year-over-year decrease in health care spending over the past five years could be the “new normal.”

Wheaton, in her piece, offers the following quote from Peter Orszag, former Director of the White House Office of Management and Budget during President Barack Obama’s first term:

“There’s a sea change going on that is causing health costs to grow much more slowly than they have historically.”

After a succession of CBO adjustments further and further reducing Medicare spending estimates over the past six straight years, the downward trend in spending points to structural changes in the way health care is delivered in our country. Wheaton adds:

“The new numbers do appear to lend ammunition to one side in the ongoing debate over what’s most responsible — the Great Recession or structural changes in how health care providers do business. Typically cited are the spread of accountable care organizations, the trend away from fee-for-service payments, the digitization of health care and employers’ moves toward defined-benefit insurance plans.”

It is becoming increasingly evident that the changes in health care delivery are driving the sustained spending slowdown – a slowdown that could yield as much as $900 billion in additional Medicare savings over the next decade, according to a recent study, commissioned by the FAH from the economic consulting firm Dobson | DaVanzo. The continued downward trend in health care spending from the BEA yesterday further supports the Dobson | DaVanzo study’s estimates of continued savings.

Clearly, a dynamic transformation is taking place, and hospitals are leading the way, from historically low price growth to clinically integrated care. Let’s not disrupt it with misguided policies or perpetual cuts to hospital funding.

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White House Blog Validates Enduring Spending Slowdown in 2014

May 28, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown

Yesterday, the White House published a blog showcasing new powerful numbers that demonstrate the ongoing trend that is the national spending slowdown in health care spending.
“… the last several months have also seen a steady stream of good news on health care costs. This good news suggests that even as coverage expands, the underlying slow growth in health care prices, per-enrollee spending, and premiums that we have seen in recent years is continuing.”
The blog also notes historic inflection points in health care data:
As measured using data from the Bureau of Economic Analysis through March 2014, prices of health care goods and services were up just 0.9 percent relative to a year ago, the slowest rate of increase in the last 50 years. The slow growth in health prices does not merely reflect slow inflation economy-wide, as the gap between health care inflation and general inflation is also low in historical terms.
Surveying the latest data for 2014, the post also references a new Milliman report focused on the total healthcare spending for a family enrolled in employer coverage. According to Milliman, the growth in the cost of care for a typical family, at 5.4% in 2014, is at the lowest level since Milliman first began tracking this measurement in 2002.

The White House also points to recent projections from the Congressional Budget Office (CBO), which estimates a rise of just 0.7% in Medicare spending for the first seven months of 2014, relative to the same period in FY13. Inflation-adjusted Medicare spending per beneficiary is down 3.4 percent versus the same period last year and follows three years over which growth in inflation-adjusted Medicare spending per beneficiary is estimated to have averaged close to zero.

The Milliman Report, and blogs like this from the White House which aggregate a number of critical data and studies, reinforce that the spending slowdown in health care is enduring long beyond economic recovery. The ongoing slowdown is credited in large part to structural changes outlined in a report commissioned by the FAH earlier this year. This report estimated as much as $900 billion in additional Medicare savings in the next ten years. This, in addition to the CBO’s ever-shrinking estimates in Medicare spending growth further verifies that the spending slowdown is based in foundational, structural changes in the delivery of health care.

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New Reports, Analysis Put Spending Uptick In Perspective; Reaffirm Medicare Savings

May 14, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown, Uncategorized

Recent coverage of health care spending has focused on an uptick in health care spending, causing a swath of claims that the spending slowdown has ended, or been reversed. Fortunately, several new data points and analyses put the uptick in perspective after four consecutive years of historically low growth in national health care spending.

In a Bloomberg View article by Peter Orszag, he points out that in assessing this spike in spending, one has to keep in mind the 8 million people who recently signed up for coverage through the Affordable Care Act, as well as the 5 million who have enrolled in Medicaid. With the increased enrollment in health insurance exchanges spurred by the Affordable Care Act going into effect, naturally utilization of health care services will increase, causing this spike in spending. Orszag also points out that the continued slow growth of Medicare spending, along with the slow job growth in the health care sector are other indicators that the sending slowdown has not seen its last legs.

Orszag also points out the constant revision of estimates and projections on spending, GDP and other critical data for health care. Case in point: CBO recently adjusted its projections on Medicare spending to reflect an additional $106 billion in savings beyond its most recent 10-year spending estimates. And just last week, the Altarum Institute released its May 2014 monthly briefs on price and spending, urging caution on reaching any conclusions, noting, among other data points, that health and hospital price growth remains at or near historic lows.

In addition, there is another piece shining light on the realities of US health care spending. The Committee for a Responsible Federal Budget released a report noting $900 billion in Federal health care savings resulting from CBO‘s repeated reductions in spending projections

The report notes:

The last pre-ACA CBO baseline was in March 2010 and projected net spending on Medicare and Medicaid at $1.34 trillion in 2020. The April 2014 baseline, though, actually estimates spending on those programs plus the ACA’s exchange subsidies in 2020 will be $70 billion lower than before the ACA was even enacted, at $1.27 trillion. Note that the most recent comprehensive estimate of the ACA had it increasing federal health spending, on net, by $145 billion in 2020 (including the revenue effect of the exchange subsidies), but that increase has been outdone by the declining projections of federal health spending since then.

All of this news and new information reinforces the trend of slower growth in health spending due to structural changes taking hold in health care payment and delivery - points made in a report commissioned by the FAH earlier this year assessing the spending slowdown.

The report, from the economic consulting firm Dobson | DaVanzo, estimates as much as $900 billion in additional Medicare savings over the next ten years. The $106 billion already revised by CBO is movement towards this nearly $1 trillion in savings that we believe will come to fruition as the spending slowdown continues.

The increased utilization of health care services due to the enrollment of millions of Americans in the health care exchanges will naturally cause a spike in health care spending; however this should not be viewed as an indication that the past four years of an unprecedented slowdown in health care spending has been reversed. We continue to see positive signs of continued slowed spending, historic low price growth, and a downward spiral in projected Medicare spending. These welcome outcomes result in part from the power of the structural changes taking place in the delivery of health care – changes that are driven in large measure by the investments and leadership of hospitals. Going forward, it is imperative that hospitals be allowed to continue investing in this transformation and that resources are not syphoned off by short sighted budget cuts or burdensome new policies. Let’s continue investing in success.

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