fah hospital policy blog

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

Category Archives: spending-slowdown

Health Care Spending Slowdown Generates Massive Savings

April 10, 2015 | FAH Hospital Policy Blog Team

Category: Spending Slowdown

On Wednesday, the Urban Institute released a new study showing the national health care spending slowdown trend continues to endure in 2015. It is welcome news for health providers facing threatened program cuts in the coming year. Using a compilation of earlier projections from CMS and the ACA baseline, the Urban Institute finds that over the 2014-2019 period:

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CMS Report Validates Enduring Spending Slowdown: Data Show Continued, Record Setting Slowed Health Care Spending

December 04, 2014 | FAH Hospital Policy Blog Team

Category: Spending Slowdown

A new annual report from CMS on national health spending growth in 2013 is making headlines this week, with continued slowing of rates to record-low levels. According to the report, which was released in Health Affairs, in 2013 the growth of health care spending in the United States slowed to its lowest level in more than 50 years. The spending slowdown endures for another year, which is continued good news for consumers, businesses and taxpayers.

There are a number of key data points in the annual report, including:

Total national spending for health care in the United States increased 3.6% to $2.9 trillion in 2013—the lowest growth rate in 53 years

The spending growth increase in 2013 was slower than that of 4.1% in 2012 and continued a pattern of low growth—between 3.6% and 4.1% for five consecutive years

The health spending share of the gross domestic product (GDP) remained stable at 17.4 percent in 2013

Medicare spending growth decelerated from 4.0 percent in 2012 to 3.4 percent in 2013

Medicare per beneficiary spending growth is flat in 2012 and 2013

The White House weighed in on the report in a new blog post, saying:

“Today’s data make it increasingly clear that the recent slow growth in the cost of health care reflects more than just the 2007-2009 recession and its aftermath, but also structural changes in our health care system, including reforms made in the Affordable Care Act. As we have noted previously, if even a portion of the recent slowdown continues, the benefits for Federal and State budgets, families’ budgets, and the economy as a whole will be dramatic.”

The enduring spending slowdown already has yielded substantial savings for Medicare, totaling more than a trillion dollars in revised spending projections from CBO. If the slowdown continues, studies show it will generate as much as an additional $900 billion in Medicare savings.

The evidence of the impact of the slowdown continues to grow. An analysis of a CBO report issued earlier this year reveals Medicare spending per beneficiary is falling when adjusted for inflation, and based on current CBO projections will continue to experience negative cost growth through 2020.

The annual CMS report is proof positive that the spending slowdown trend, if allowed to endure, will reap significant savings for our national health care system. Many studies have credited structural changes put in place by health care providers as a key driver of the sustained the slowdown, well beyond the effects of the Great Recession.

The White House blog notes two key differences in the data from the 2013 spending that supports the assertions of those pointing to structural changes as a key factor in the sustained trend:

Slow growth has been seen in Medicare, not just private insurance: Like other recent years and as shown above, 2013 saw very slow growth in per enrollee costs in Medicare, not just private insurance. But the Medicare program and its beneficiaries are largely insulated from developments in the broader economy, and economists at the Congressional Budget Office have demonstrated empirically that weak macroeconomic performance does not appear to increase Medicare spending growth. The fact that Medicare spending has nevertheless seen very slow growth suggests that structural factors are major contributors to recent slow growth.

2013 was the fourth full year of the economic recovery: With each passing year, it becomes increasingly difficult to explain why and how the 2007-2009 recession could still be exerting significant downward pressure on health care spending growth and, thus, increasingly implausible that the recession is the main explanation for that slow growth. That challenge is particularly acute for 2013, the fourth full year of an economic recovery in which the pace of job gains have strengthened steadily over time.

Hospitals have helped lead the way in implementation of these structural changes, recognizing the importance of this investment as a part of a transforming national care model. As the CMS report notes, hospital spending growth decelerated sharply in 2013, accompanied by a deceleration in price growth. And Medicare hospital spending growth declined to 2.6 percent, a 32 percent drop from 2012.

This is why the FAH has long urged policymakers to let the system work, allowing this vital trend to continue as long as possible. The CMS report showing continued consecutive years of health care savings is heartening news and serves as an important validation of this historic trend.

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Improvements in Medicare Outlook Reinforce Health Care Spending Slowdown

July 28, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown

Today, the Trustees of the Social Security and Medicare trust funds released their annual report on the financial status of the two federal programs. The trustees report an improvement in the outlook for the Medicare Hospital Insurance (HI) Trust Fund, extending expectations of funding from last year’s report an additional four years into 2030.

The report also attributes these improved projections in Medicare to lower spending on hospital services:

“The improvement in the outlook for HI long-term finances is principally due to lower-than-expected spending in 2013 for most HI service categories, which reduced the base period expenditure level about 1.5 percent and contributed to the Trustees’ decision to reduce projected near-term spending growth trends.”

Today’s report is the latest news underscoring the enduring national health care spending slowdown, in addition to near record-low hospital pricing and cost growth. Earlier this month, the Bureau of Economic Analysis’ (BEA) announced a 1.4% decline in national consumer health care spending – the largest decrease in national health care spending in 30 years.

The BEA and Trustees reports are further supported by other evidence including an annualized .9% increase in hospital price growth in 2014 (based on data from the Bureau of Labor Statistics).

And perhaps the most staggering number of all: recent reports from the CBO show the organization lowered its estimates of Medicare and Medicaid spending by well over $1 trillion over a series of revised projections since 2010.

Today’s announcement from the Social Security and Medicare Trustees, taken together with this series of data, figures and projections in health care serve as further proof the spending slowdown is alive and well in 2014. This is not merely a blip on the radar, but a part of a historic and enduring trend in health care today that could potentially bring an additional $900 billion in savings to Medicare. Hospitals will continue to do their part in leading the way to further savings and higher quality care.

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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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