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Health Spending Dips Below GDP Growth—But No Huzzahs for Health Law

By John Reichard, CQ HealthBeat Editor

January 6, 2014 -- National health spending growth remained unusually low in 2012—even taking the rare turn of dipping below gross domestic product (GPD) growth—but government economists aren't making return trips to the liquor store to lay in new supplies of champagne.

There is widespread speculation by other economists that something else is at work in producing low spending growth, rather than the traditional impact of a recession on consumer spending. But the authors of the Centers for Medicare and Medicaid Services (CMS) analysis aren't ready to go there.

That's the case even though the report, posted online by the journal Health Affairs, shows that spending growth in 2012 totaled just 3.7 percent, the fourth year of very low growth. Growth "during all four years has occurred at the slowest rates ever recorded in the 53-year history of the National Health Expenditure Accounts," the journal said in a news release highlighting the findings.

"It's still very consistent with what we've seen in the history where two to three, even four years out, you would still see health spending having that lagged impact" from recession, said CMS analyst Aaron Caitlin at a press briefing on the new findings. The report was produced by the office of the actuary at CMS, which has a reputation for independent analysis of health care spending.

President Barack Obama has been quick to credit the health care law for the slowdown in national health spending, and some analysts have suggested that the overhaul may be having a small impact. But overall, "Affordable Care Act provisions effective for 2010 through 2012 had minimal impact on total national health spending," according to slides presented at the briefing.

Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, seized on the report's conclusion that the health care law has had a minimal impact on overall national health spending growth through 2012. "This report shows that the Administration's promise that Obamacare would rein in the skyrocketing health care costs is false," he said in a news release. "This report shouldn't be a cause for celebration, but rather is a precursor to hither costs and more broken promises."

But White House officials said that the overhaul has helped to slow costs down.

"While there is a debate about how much the Affordable Care Act has contributed to this health cost slowdown, there is no doubt that it reduced Medicare spending growth, and most experts believe that Medicare savings spill over into the private sector," Jeanne Lambrew said on a White House blog. Lambrew is deputy assistant to the president for health policy. "And it is a fact that health care prices have grown at record-low rates —and are less affected by recessions and cost sharing than health care utilization is," she added.

Lambrew said that according to the CMS Office of the Actuary, medical price inflation was 1.7 percent in 2012, down from 2.4 percent in 2011. "The Affordable Care Act was designed to contribute to and sustain slow growth in health spending in this nation," she said.

Jason Furman, chairman of the White House Council of Economic Advisors, tweeted that the slowdown is not all because of the recession and is continuing as the economy improves. The health care law is contributing to the slowdown, he said, linking to a White House report issued in November that reaches that conclusion.

The actuaries said that mixed spending trends in 2012, including accelerated spending on hospital and doctor care and slower price growth that braked spending on prescription drugs and nursing facility treatment "produced the fourth consecutive year of low overall health spending growth." That "led to a relatively stable health spending share of GDP."

The authors added that "from our perspective, more historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health sector and the overall economy." The recession officially ended in June 2009.
Spending in 2012 totaled $2.8 trillion, or $8.915 per person. The share of the economy devoted to health care in 2012 was 17.2 percent, compared to 17.3 percent in 2011.

Historically, health spending rises at an annual clip above GDP; the last time it fell below GDP growth was in 1997, said Anne Martin, the lead author of the report. There was essentially no change in the share that health care made up of GDP between 2010 and 2011, she said. But despite the unusual result, the analysts didn't credit anything other than recessionary effects.

Their analysis of the impact of the health care law found that it increased national health spending by one tenth of a percentage point overall for the years 2010, 2011 and 2012. That was the cumulative impact on spending for the entire three years, not the annual rate on spending growth stemming from the law.

Some aspects of the law drove up spending, while others reduced it. Adding to national health spending were coverage of dependents under age 26 on parents' private health plans, a program for those with pre-existing medical conditions, and outlays to discourage employers from dropping coverage for early retirees.

Also increasing spending were coverage of prescription drugs in the Medicare coverage gap called the "doughnut hole." But health care law provisions reducing Medicare payment updates to providers, setting minimum payouts for health care from premium dollars, and widening drug rebates in Medicaid had a braking effect.

So if the health care law couldn't be credited for the spending slowdown, it could be viewed as largely paying for itself at least in the 2010 through 2012 period.

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