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From Health Law Daily, November 21, 2013

Growth of health care spending at record low

By Patricia K. Ruiz, JD

The growth of health care spending this year is the lowest on record, with health care price inflation at its lowest rate since 1962, according to a report issued by the Council of Economic Advisors. The data used in the report, which explores the causes of these trends ranging from the recession to spillover of the Patient Protection and Affordable Care Act (PPACA), suggests that the slowing of spending growth can be expected to continue.

Trends in spending growth. Data from the National Health Expenditures Accounts projections by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) shows that the growth rate of health care spending between 2010 and 2013 is historically unprecedented. Per enrollee, spending growth over this period of time is one-third of the level from 2000 to 2007 and one-half the level of 2007 to 2010. The slowing of spending growth in Medicare is dramatic, as real growth in costs per beneficiary has all but ceased. In Medicaid, growth has given way to reductions in per-beneficiary cost growth.

Possible causes. The report is hesitant to attribute the slowdown in growth to idiosyncratic factors affecting a one category of spending or one kind of payer, as the slowdown has had an effect on all major payers and every major category of spending. While the recession of 2007 to 2009 could be a potential driver, the slowdown has extended past the end of the recession, with growth falling further even after it ended. Data also shows slowdown occurring in Medicare, which is largely insulated from a weakening labor market, supporting a point that the recession is not the cause.

Other factors. The report indicates that an increase in cost-sharing may also be to blame, as higher deductibles for private plans have resulted in lower utilization of employer benefits. Further, prescription drug spending has been slowing considerably in recent years due to the expiration of patents for many drugs, leading to loss of exclusivity and the introduction of lower-cost generics into the market.

Impact of PPACA. Although growth began to slow before the passing of PPACA, some of the slowdown in growth can be attributed to PPACA and its role in making changes in the nation’s health care system. The reduction of overpayments by Medicare to providers and health plans has caused a quantifiable effect on health care spending in the U.S. Additionally, changes in Medicare payment models to stress quality over quantity, have created more high-quality, efficient care (lessening the financial burden of fragmented healthcare and hospital readmission).

Benefits of slow health spending growth. With the growth of health spending slowing, the nation can expect economic benefits such as lower deficits, faster economic growth, and higher living standards. Benefits may also include higher employment—at least in the short-run, when reduction in employer health care costs spur hiring—but this change is unlikely to last, as the savings from lower health care costs are more likely to result in higher wages, rather than more employees.

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