The Office of the Actuary for the Centers for Medicare and Medicaid Services (CMS) reported this monthshutterstock_310816169-coins-graph-72dpi.jpg that overall healthcare expenditure increases seem to be slowing compared to the past. In 2014, per-capita healthcare spending increased by just 4.5 percent, while overall health spending grew by 5.3 percent. CMS says that two factors are the cause for the year-over-year increase. First, prescription drug costs grew at 12.2 percent, driven very much by demand for specialty drugs. Second, expenditures grew in part because of the tremendous increase in health coverage due to the Exchanges and Medicaid.
At the same time, CMS is tying the slowdown in growth to the passage of the Affordable Care Act (ACA) in 2010. Of important note, consumer out-of-pocket spending grew by only 1.3 percent in 2014, as compared to 2.4 percent growth in 2013, reflecting the increased number of individuals with health coverage and consumer maximum out-of-pocket cost (MOOP) protections in the ACA products. The healthcare expansion increased coverage by almost 9 million individuals and reduced the uninsured rate from 14 percent nationally in 2013 to a little over 11 percent in 2014.
Healthcare spending’s share of the gross domestic product (GDP) is still advancing but at a slower rate. The CMS actuaries note that in 2014, the increase that healthcare represents of the national economy grew by just 0.2 percentage points (17.3 percent to 17.5 percent). Why is healthcare’s share of GDP important? As we know, any time liabilities keep growing as a percentage of the economy, they tend to dampen economic growth by stealing vital capital. Europe is a prime example: large unfunded health and pension liabilities are driving many nations there to—at best—anemic growth in good times. Here in the United States, unfunded liabilities in the Medicaid, Medicare, Social Security and pension, and retiree health worlds threaten to push the American economy in the same direction over time.
It is too early to say if the United States has turned the corner on controlling health costs. On the positive side, the renewed policy emphasis on prevention, care management, and quality will positively impact future results, but these reforms take time. On the negative end, we have noted some alarm bells are sounding with the Exchanges that could impact future premiums and risk selection. And, too many beneficiaries still remain in the antiquated Medicare and Medicaid fee-for-service (FFS) environments. The verdict is very much out on the impact of the FFS pilot reform initiatives and the impact they really can have on bending the cost curve.