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Lower Health Care Spending in 2010 Is a Lull Before a One-Year Spike Hits in 2014

By Rebecca Adams, CQ HealthBeat Associate Editor

July 28, 2011 -- National health care spending grew by 3.9 percent in 2010, a historic low, according to a new analysis by Centers for Medicare and Medicaid Services actuaries published Thursday. The study assumes that medical care spending will spike in 2014 because of the overhaul law, but will resume growing each year at rates expected if the measure had not been enacted.

As a result, CMS actuaries predict that the health share of the economy will grow from 17.6 percent of gross domestic product in 2009 to 19.8 percent in 2020. During that period, about 30 million more people will be insured because of the health care overhaul’s coverage expansion, according to the study published in the journal Health Affairs. The actuaries publish such findings each year. The report is considered to contain the most comprehensive and credible objective data available into past and projected national health care spending.

This latest report projects that the average annual growth in national health care spending is expected to be 5.8 percent from 2010 to 2020, 0.1 percentage point higher than it would have been had the health care law (PL 111-148, PL 111-152) not been enacted.

“The bottom line from the report is clear: More Americans will get coverage and save money, and health expenditure growth will remain virtually the same,” White House Deputy Chief of Staff Nancy-Ann DeParle wrote on the White House blog.

The movement of the baby boomers into government health programs as they age and the effects of the health care law will increase the share of medical services paid for by the government from 45 percent in 2010 to 49 percent in 2020.

The amount of spending on services financed by Medicare and private health insurance will not change significantly from 2010 to 2020. But Medicaid, the federal-state program for the poor, will pay a larger share, the actuaries project. By 2020, the amount of spending on health services financed by Medicare will be 20 percent, the same as it was in 2009. Private health insurance will pay for about 32 percent of expenses in 2010, and a decade later is still expected to be paying about 30 percent of costs. But the share of national health costs paid by Medicaid will grow from 16 percent in 2010 to 20 percent in 2020.

Overall, the share of all health spending that goes to specific services such as physician visits or prescription drugs will barely change from 2010 to 2020. For instance, the percentage that goes to prescription drugs will be 10 percent in 2010 and 11 percent in 2020, while the percentage that goes to hospital services will fall from 31 percent to 30 percent.

But in 2014, the year that most of the health care law’s coverage expansions take place, the total amount of spending is expected to be higher than it would have been without the health care law. That is especially true for prescription drugs and physician services, since many of the people who gain insurance will be younger and healthier than those already insured and will have less need for hospital care. Prescription drug spending will grow by an annual rate of about 10.7 percent in 2014, which is 5.1 percentage points higher than it would have been if the law had not been enacted. Spending for physician and clinical services will grow by 8.9 percent that year, or 3.1 percentage points higher than it otherwise would have been. Hospital spending will increase 7.2 percent, which is 1 percentage point higher than before the overhaul.

Overall spending growth in 2014 is expected to spike, rising to 8.3 percent.

But after that one-time jump, annual spending growth rates will settle back down to levels that would have been expected without the health care law. National health spending costs are projected to grow at an average annual rate of 6.2 percent per year from 2015 to 2020. For the entire 2010–20 period, health spending is projected to grow at an average rate of 5.8 percent per year, which is 1.1 percentage points higher than the expected rise in GDP.

White House officials say the analysis doesn’t take into consideration other savings that are difficult to estimate.

“The report doesn’t tell the whole story,” DeParle wrote in her blog post. “The Affordable Care Act creates changes to the health care system that typically don’t show up on an accounting table. We know these new provisions will save money for the health care system, even if today’s report doesn’t credit these strategies with reducing costs.”

Those provisions include plans to reduce hospital readmissions, encourage providers to coordinate more closely on patients’ care, and bundle payments for doctors and hospitals rather than bill for each individual procedure or test.

Looking back at spending in 2010, the recession had a significant impact on the spending slowdown. National health spending was estimated at $2.6 trillion last year. The 3.9 percent growth rate is slightly lower than the 4 percent growth seen the year before.

The low growth rate is due to two main factors, the study said. First, Medicare spending growth was lower than in previous years because Congress lowered the amount by which reimbursements for the Medicare Advantage plans would rise. Second, the recession took a toll. People lost their private health insurance, which meant they used fewer health services and spent less. And people paid less out of pocket for services because they had less money to spend.

Health Affairs article (pdf)

Rebecca Adams can be reached at [email protected].

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