Health Care Spending Spikes: Why?

You may have read that health care spending in the private sector picked up both in the fourth quarter of 2013, and during the first two months of this year. Recent data from the Bureau of Economic Analysis (BEA) show that during the last three months of 2013 spending on health care rose at an annual rate of  5.3%  The trend continued this year, with spending climbing 6.2%, on a year-over-year basis in January, and 6.7% in February.

This came as a surprise. Since December of 2007, after adjusting for inflation, health care outlays have been rising by only 2.6%  As former CBO director Peter Orszag observed in a Bloomberg column published yesterday,  “the sudden jump has led some some commentators to declare an end to the era of slower health-cost increases, which has lasted for the past several years. ”  Yet, Orszag notes, “Medicare spending growth is still low, even through last month. Indeed, in the first half of this fiscal year, nominal Medicare spending was only 0.6 percent higher than in the corresponding period a year earlier.”

Why Have Outlays Risen for Those Under 65, But Not for Seniors?

BEA suggests that the jump during the first two months of this year reflects the fact that, thanks to the Affordable Care Act (ACA),  more Americans had comprehensive insurance that gave them access to a wide range of services.

Those who became insured in January and February are the folks who signed up at the very beginning of the enrollment period. No doubt many of them had been postponing needed care for a long time. As soon as they were covered, they began visiting doctors, scheduling elective surgeries, and filling prescriptions.

Going forward, won’t the fact that more Americans are insured mean that health care spending will continue to rise? Yesterday, the Congressional Budget Office (CBO) released a report that said “No.” The ACA will cost about $1 billion less than originally projected, the CBO reported, even though we will be covering more people. This is largely because premiums on the Exchanges turned out to be lower than expected.

Spending Spike at the End of 2013 May Well Be Temporary 

The uptick in January and February can be explained by pent-up demand but Americans began layout more for healthcare “well before January,” BEA points out. How does one explain the surge in private sector spending in the final quarter of 2013?

Some observers suggest that the spike in health-care spending that we saw during the last three months of 2013 may have reflected the panic that spread during the months before the ACA kicked in.. The Wall Street Journal’s  ”MarketWatch” puts it this way:  spending  may have risen in the fourth quarter as consumers and companies prepared for the official rollout of the law on January 1. It might not  last.”

This makes sense.

My guess is that many people who knew that their policies were going to be cancelled in January used that insurance during the final months of 2013 because they didn’t know: a) whether they would find new coverage in their Exchange and b) whether they would like it as well as their old policy.

Keep in mind that in the final quarter of 2013, the Exchanges were not working well. Those who needed to sign up for new coverage were anxious, and the media was stirring the pot by telling them that, in the Exchanges, out-of-pocket expenditures would be sky-high. If you were thinking about having a hip replacement, you might well decide to schedule it in October, rather than taking a chance that under your new Obamacare policy, you would have to pay down a $10,000 deductible before your insurer laid out a penny for the surgery. Many people who couldn’t get through on the Exchanges didn’t even know if they would find new coverage.

In fact average deductibles and co-pays in the Exchanges would turn out to be relatively lowOnly bronze plans come with high deductibles (averaging $5,081 a year). And just 19% of Exchange shoppers wound up with Bronze plans.

 Sixty-two percent picked silver, and the  average Silver plan calls for a deductible of  $2,905–40% lower than the average Bronze plan– and roughly $700 less than the typical deductible in the individual market pre-Obamacare.  Gold and platinum plans ask for even less cost-sharing. Many offer “zero-deductible” coverage. But in the fall of 2013, relatively few people knew the facts. They only knew what they heard on Fox. . 

Meanwhile Americans who had received cancellation notices were worried, not just about out-of-pocket expenses, but about losing their doctors.  Reform’s opponents were warning that insurers selling policies in the Exchanges had created “narrow networks” of providers. Americans who bought new insurance might not be able to continue seeing the specialists they trusted. They might not have access to a hospital that they knew.This would be another reason to scheduled more appointments and procedures in the final quarter of 2013, while you could still use your old policy.

This also helps explain why Medicare spending did not rise in the final quarter of 2013: Medicare beneficiaries had little reason to worry about losing their doctors in 2014.

Going forward we may see another blip in healthcare spending as the newly insured receive care that they had deferred. But most of those who were anxious to see a doctor enrolled in the Exchanges in October, November and December, and began getting care in January and February. Those who signed up for insurance in during the final surge of enrollments are more likely to be young and healthy. My guess is that spending will slow next month.

 

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Obama’s Proposals For Medicare — Do They Go Far Enough? Will They Become Law?

Not long ago, I wrote about the Center for American Progress’ (CAP’s) “Senior Protection Plan” —a report that aims to rein in Medicare “by $385 billion over ten years without harming beneficiaries.” In that post, I suggested that CAP’s proposals might well give us a preview of the “modest adjustments” that President Obama had said he would be willing to make to Medicare.  At the time, I highlighted three of CAP’s recommendations:

– increase premiums for the wealthiest 10% of Medicare beneficiaries (raising $25 billion);

– insist that drug-makers extend Medicaid rebates to low-income Medicare beneficiaries (saving $137.4 billion);

– prohibit “pay for delay” agreements that let “brand-name drug manufacturers pay generic drug manufacturers to keep generics off the market” (saving $5 billion).

Last week, in his State of the Union address, President Obama embraced the first two:  “Already, the Affordable Care Act is helping to slow the growth of health care costs,” he noted. “The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors.”  (In time, I suspect that the administration also will call for a ban on those decidedly seamy “pay for delay” deals.)

“On Medicare,” he added, “I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission.” The commission called for reducing Medicare spending by roughly $350 billion over 10 years–  a sum that is not far from CAP’s $385 billion target.

Are These “Adjustments” Too Modest ?

These may seem like small numbers. But keep in mind that this is on top of the $950 billion that the Affordable Care Act (ACA) saves by squeezing waste out of health care spending, while simultaneously raising new revenues. Of that $950 billion, some $350 billion comes in the form of Medicare savings achieved by:

–  Pruning over-payments to private sector Medicare Advantage insurers– $132 billion  

–  Containing Medicare inflation by shaving annual “updates” in  payments to hospitals and other large facilities by 1% a year for ten years, beginning in 2014– $196 billion

– Cutting disproportionate share hospital payments to hospitals that care for a disproportionate share of poor and uninsured patients over 10 years beginning in 2014 – $22 billion.

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Join the debate on “Reining in Medicare Costs without Hurting Seniors”

The January 26 post below (“How to Rein in Medicare costs without Hurting Seniors“) has drawn some 43 comments (including mine, as I responded to readers). I thought of turning a couple of my replies into posts, but then decided it might be more interesting for you to read them in the context of what other readers said.

I would love to see more readers participate in this thread. Comments are still open.

It’s a lively thread that takes on a number of third-rail issues: Does Medicare spend too much on pricey cancer drugs, end-of-life care and brand name hospitals?

 Should we try to spend less on end-of life care? Many say “Yes,” but Zeke Emanuel (a medical ethicist and oncologist who was part of the Obama team during the president’s first term), says “No.” I link to a column where he notes that “It is conventional wisdom that end-of-life care is an increasingly huge proportion of health care spending. . . Wrong. Here are the real numbers: end-of-life care (not just for the elderly, but for all Americans) accounts for just 10% to 12% of  total health care spending. This figure has not changed significantly in decades.”

He goes on to suggest that while we probably can’t make end-of-life “cheaper,” we can make it “better . . .  Here are four things the health care system should do to try to improve care for the dying, even if they won’t save money.”

A number of readers comment on what is driving Medicare spending. Is it “patient expectations,”  “doctors’ fear of litigation,”  “regulations that dictate nurse-staffing ratios,” “practice patterns that doctors learned long ago,” or is the biggest problem “promotional efforts by manufacturers?”

Other questions come up: Does anyone really have any idea how much Medicare will cost in 2022?  By then will Medicare have begun negotiating with drug-makers and device-makers for discounts on drugs (the way the VA does now, saving 40%)?  How far will Medicare go in using medical evidence to decide what to cover?

One doctor/reader points out that in his field Medicare has begun to refuse to pay for procedures when research shows that they are not effective. He and another reader agree that in this way Medicare can provide “political cover” for private sector insurers who will follow Medicare’s lead.

We also discuss the deficit, and whether we should be trying to address the deficit now — or wait until the recession ends and unemployment falls. Also, is the deficit already dissolving as CAP suggests? 

And is the deficit our biggest problem? On this question, you will find links to Paul Krugman, Peter Orszag (who analyzes the slow-down in health care spending over the past three years as a “structural change, not just the result of the recession) and Ezra Klein,

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The Nation is Divided, Not between Whites and Minorities, But between the Past and the Future

Women, minorities, and young people re-elected President Obama. 

Pundits have pointed out that the president won only 39 percent of the vote among whites—down from 43 percent four years ago. But exit polls reveal that among women, Obama enjoyed an 11 percent advantage. “Fifty-five percent of women chose Obama,” Blooomberg observes —and clearly, this group included many white women. Sixty percent of voters ages 18 to 24 favored Obama—again, many were white voters. Among Latinos, the fastest growing demographic in the U.S., Obama won with a 44-point advantage. Romney secured just 27 percent of the Hispanic vote, down from the 31 percent who voted for the Republican candidate four years ago. Ninety-three percent of  African-Americans voted for the president, along with 73% of Asians (who now make up 3% of the electorate.)  And in the rust belt, Obama appealed to enough of the Democratic Party’s old blue-collar base  (which is largely white) to carry that section of the country.

Romney captured just two groups:  Americans over 65 and white men.  Romney’s cohort is made up of the people who ran this country in the 1980s. In a word, his supporters represent the past. Obama won among the young people, Latinos and women who will shape this nation’s future. They will be our leaders.  We have reached an inflection point in our history.

                                             Women in the Senate

 When Massachusetts elected Elizabeth Warren this was the first time that the Commonwealth sent a woman to the Senate. Thanks to last night’s election a record number of women will be serving in the U.S. Senate. There are currently 17. While two are retiring, at least four more have won — Democrats Tammy Baldwin in Wisconsin, Warren in Massachusetts, Mazie Hirono in Hawaii, and Republican Deb Fischer in Nebraska.  Claire McCaskill of Missouri, once considered the party’s most vulnerable Senator, held off a challenge by her Republican challenger, U.S. Representative Todd Akin (one of two Republicans who learned that during an election it is never a good idea to talk about rape) 

This is not to say that, going forward white men will not also be in positions of power. But in the future, a more mosaic leadership will reflect a new majority.  As Ross Douthat observed in today’s New York Times: “conservatives must face reality: The age of Reagan is officially over, and the Obama majority is the only majority we have.  (It is worth noting that Douthat describes himself as a conservative, though less “starry-eyed” than George Will.) 

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Truth Squad: Is “Obamacare” Pushing Health Care Spending Higher? What Will Happen in 2014?

In last Tuesday’s debate Mitt Romney suggested that, under Obamacare, health insurance premiums have spiraled by $2,500 per family. Not true.  (Hat tip to Healthcarefinancenews.com.)

 First let’s get the number right: According to an annual survey of employer plans  by the Kaiser Family Foundation and Health Research & Educational Trust, since the Affordable Care Act (ACA) passed in 2010, the average annual premium for family coverage has risen by $1,975 not $2500.  $1975 is a hefty sum, but 20% less than Romney claimed.

More importantly, $1,975 represents the combined increase in contributions made by employers and employeeswith employers picking  up the lion’s share of the hike. “In reality, premiums paid by employees haven’t changed that much.Factcheck observes. In fact, when you look at the rise in how much employees contributed, “the federal health care law was responsible for a 1 percent to 3 percent increase because of more generous coverage requirements.” In other words, employees were paying a little more, but getting value for their dollars.

After telling a whopper about how much employee’s health care premiums have risen in the past, Romney went on to assert that if Obamacare is  “implemented fully, it’ll be another $2,500 on top” of that. His evidence?  None.

                                              The Media Spreads the Myths

Yet the media continues to swallow the notion that under “Obamacare” health care spending will levitate. A few days ago, the Washington Post’s Robert J. Samuelson wrote: “Almost every expert agrees that controlling health costs is the crux of curing chronic budget deficits. Health-care spending already exceeds a quarter of federal outlays. With Obamacare’s coverage of the uninsured starting in 2014 and retiring baby boomers flooding into Medicare, the share is headed toward a third.”

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