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Record low growth in health care spending

A sluggish economic recovery, changes under Obamacare and federal spending cuts helped to slow the growth in health care spending to 3.6% last year—the lowest yearly increase since 1960, according to a new study from the Centers for Medicare and Medicaid Services.

The new data show that health care spending has grown slowly since the financial crisis, remaining between 3.6% and 4.1% for the last five years. 

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The spending slowdown has helped allay fears that runaway health care costs will overwhelm ordinary households and government entitlement programs. “It’s a continuation of the very good news” that health care costs are slowing, said Loren Adler, research director for the Committee for a Responsible Federal Budget.

But it’s unclear how much of the recent slowdown is due to a sluggish economy. Economic uncertainty has held back investment in medical structures and equipment, helping to slow overall spending, for instance; it also may be prompting consumers to spend less on out-of-pocket costs. While health care spending has slowed in recent years, so has broader economic growth. The percentage of gross domestic product devoted to health care spending has stayed at 17.4% since 2009, according to the study.

“The key question is whether health spending growth will accelerate once economic conditions improve significantly; historical evidence suggests that it will,” said the study, which was published in the journal Health Affairs.

There are signs, however, that Obamacare and other federal legislation are responsible for at least some of the slowdown—particularly in Medicare, which is significantly more insulated from the rest of the economy. The Affordable Care Act is reducing payments to Medicare Advantage, a private alternative to traditional Medicare, which helped to slow down Medicare spending growth last year, the researchers said. The automatic federal budget cuts under sequestration also helped to slow Medicare growth, as it included a mandatory 2% cut to Medicare providers.

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Obamacare helped to slow premium growth as well by requiring insurers to spend a new minimum amount on medical care—as opposed to administrative costs and profits—according to the researchers. Consumers are also increasingly choosing high-deductible plans, which has also put downward pressure on premiums. Overall, growth in private healthcare premiums was just 2.8% in 2013, compared to 4.0% in 2012. 

That said, there are ways that Obamacare is accelerating health care spending as well. Medicaid spending grew faster in 2013, in part because some states decided to embrace the health care law’s Medicaid expansion early on, the study said. Medicaid spending is continuing to grow as more states have adopted the expansion this year. 

That’s why the government, private employers and consumers alike will be keeping tabs on future growth in health-care costs.

“From the federal and state government, with so much of health care being covered by public tax dollars, there’s a big incentives to control cost growth,” said Adler. “On the private side, for the employers, it’s one of their largest expenses.”

Affordable Care Act, Medicaid, Medicare and Obamacare

Record low growth in health care spending