Health system reform law expected to spark spending rebound

A federal report predicts that millions of newly insured people, many of them relatively young and healthy, will visit physicians and fill prescriptions starting in 2014.

By Doug Trapp — Posted Aug. 8, 2011

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Last year, Americans continued to hold back on physician office visits, prescriptions and other health care due to the lingering effects of the economic recession. But coverage expansions in the health system reform law are projected to produce an across-the-board spike in health care spending in 2014 and beyond.

National health spending grew by 3.9% in 2010 to reach $2.6 trillion, the lowest growth rate since at least 1960. The previous low was 4% in 2009, according to preliminary estimates by the Centers for Medicare & Medicaid Services Office of the Actuary, published online July 28 in the journal Health Affairs.

The recession may have ended officially in June 2009, but growth in health spending in 2010 remained slow in part because many people remained uninsured or underinsured, the report concluded. The number of people enrolled in private plans fell by 5 million in 2010. Private health spending grew by 2.6%, a slight recovery from its 1.3% growth in 2009.

Likewise, spending on physicians and clinical services -- a category in which 80 cents out of every dollar is spent on doctors -- grew by just 2.4% in 2010, the lowest rate on record. Growth in spending on physicians in 2012 could be even smaller -- 0.8% -- if a nearly 30% cut to Medicare physician pay is implemented as called for under current law. If Congress again delays the cut, spending on physicians would increase by about 4% in 2012.

The American Medical Association strongly opposes the across-the-board Medicare cuts. But the AMA has recommended a series of actions to address health care cost increases, such as reducing preventable disease rates, eliminating administrative burdens that don't contribute to patient care, and reducing geographic variations in health spending by improving clinical data availability.

"Going forward, it is important for everyone, including physicians, patients and lawmakers, to work together to improve the overall value of our health care spending," said AMA President-elect Jeremy Lazarus, MD.

Busier days ahead for doctors

More than 30 million people are expected to gain coverage beginning in 2014, either through Medicaid or private health plans offered through health insurance exchanges. The health reform law will require most Americans to have a minimum level of health coverage or pay a tax penalty.

"We expect that on average the new expansion populations will be relatively younger and healthier than current enrollees," said report co-author Andrea M. Sisko, an economist with the CMS actuary office.

Even with their good health, many of these newly insured are expected to visit physician offices in 2014, increasing spending on physicians and clinical services by 8.9% that year, according to the report. National health spending is expected to increase by 8.3% in 2014, after growing a little more than half as quickly in each of the preceding years.

Spending on prescription drugs also is expected to spike in 2014. "A lot of those people, when they gain insurance coverage, we're assuming they will see a doctor and get prescriptions," said report co-author Sean P. Keehan, a senior economist with the actuary office.

An influx of generic versions of several popular brand-name drugs beginning in 2011 will help restrain annual prescription drug spending growth to the 5%-to-6% range during the next couple of years, but in 2014 spending growth on drugs is expected to reach 10.7%. "It's really a utilization issue," Keehan said.

However, Pharmaceutical Research and Manufacturers of America Vice President Karl Uhlendorf said the actuaries' estimates of drug spending growth are overstated, at least in the near-term. Some industry researchers predict annual growth in drug spending of only 3% or less between 2011 and 2015, he said.

Hospital spending growth also will increase faster beginning in 2014, but not as quickly as for physicians and prescription drugs. That's in part because the health reform law includes a number of cuts that affect hospitals, including payment reductions to Medicare private plans. Hospitals also would be affected by the 2012 cut to Medicare physician pay because hospitals employ about 20% of physicians, said Caroline Steinberg, vice president for trends analysis at the American Hospital Assn.

"Hospitals are feeling a lot of uncertainty," she said.

Congressional Republican efforts to repeal the health system reform law would not end hospital payment cuts included in the law. Meanwhile, states are reducing hospital pay to close ongoing budget deficits. Hospitals also expect to be paid based in part on the quality of care they provide through a number of programs, including the accountable care organizations in the health reform law.

The report's estimates reflect current law at the time of its release. The authors did not attempt to adjust the estimates for any health care cuts stemming from legislation to increase the nation's statutory debt limit. Nor do the estimates consider how physician shortages might constrain access to care beginning in 2014.

Partisan interpretations

Implementation of health reform is not expected to increase overall health spending dramatically, although health spending will continue to outpace economic growth, according to the report.

Health reform supporters pointed to the relatively limited cost increases projected in the actuaries' report. National health spending will grow by 5.8% on average between 2010 and 2020, but such spending still would have grown by 5.7% without health reform. Also, out-of-pocket spending will decline as a percentage of overall spending, putting less strain on patients' budgets.

"With tens of millions of people about to receive health coverage with no appreciable cost increases, it means that the per-person costs for insured people will be lower than they would have been in the absence of the Affordable Care Act," said Ron Pollack, executive director of Families USA, a health consumer advocacy organization.

Republicans, however, called attention to increases in overall health spending and especially government spending. CMS actuaries project that national health spending will reach $4.6 trillion by 2020, or roughly 20% of the total economy, up from 17.6% in 2010. By 2020, government health care spending is expected to reach 49% of overall health spending, up from 47% in 2014.

"The central promise of the White House's partisan health law was that it would reduce health care costs, but, unfortunately, as the report shows, this law is only making things worse," said Sen. Orrin Hatch (R, Utah).

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The health reform spike

National spending on most parts of the health system will increase significantly because of coverage expansions in the health system reform law. The estimate for the net cost of insurance reflects the difference between premiums paid and benefits earned.

Projected spending growth in 2014
Category Without health reform With health reform
National health spending 5.8% 8.3%
Hospitals 6.2% 7.2%
Physician and clinical services 5.7% 8.9%
Prescription drugs 5.5% 10.7%
Net cost of health insurance 4.5% 13.9%
Government administration 3.3% 14.6%

Source: Office of the Actuary, Centers for Medicare & Medicaid Services

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View in PDF

Click to see data in PDF.

The SGR's impact

Unless Congress overrides it, a 29.5% Medicare pay cut scheduled to take effect on Jan. 1, 2012, would significantly reduce total national spending growth on physician services and other sectors of the health system. If lawmakers were to eliminate the sustainable growth rate formula, national spending growth would be significantly higher.

Projected spending in 2012
Category 2011 spending 2012 spending Growth
National health care with SGR $2.7 trillion $2.8 trillion 4.3%
National health care without SGR $2.7 trillion $2.9 trillion 5.3%
Hospitals with SGR $831 billion $873 billion 5.0%
Hospitals without SGR $831 billion $876 billion 5.4%
Physician and clinical services with SGR $538 billion $543 billion 0.8%
Physician and clinical services without SGR $538 billion $563 billion 4.5%
Prescription drugs with SGR $276 billion $290 billion 5.3%
Prescription drugs without SGR $276 billion $293 billion 6.1%

Source: Office of the Actuary, Centers for Medicare & Medicaid Services

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External links

"National Health Spending Projections Through 2020: Economic Recovery and Reform Drive Faster Spending Growth," Health Affairs, July (link)

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