fah hospital policy blog

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

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.