Economists see health spending bouncing back

Federal actuaries say Medicare spending will increase steadily as more seniors enroll, but physician pay cuts would slow spending dramatically if allowed to take effect.

By Charles Fiegl amednews staff — Posted June 25, 2012

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Federal health actuaries anticipate that growth in national health spending, which has been restrained in recent years, will continue to accelerate as the economy recovers and more Americans potentially gain health coverage.

Annual total health expenditures are expected to grow an average of 5.7% between 2011 and 2021, according to a study by actuaries from the Centers for Medicare & Medicaid Services in the June 12 Health Affairs. The authors expect Americans to spend more health care dollars compared with previous years because of coverage expansion provisions in the national health system reform law and because more seniors will be enrolling in Medicare.

Spending on physician services had grown 2.7% in 2011, which was at a slightly faster pace than in 2010. “Overall, however, the growth rate on physician and clinical services still remains relatively slow,” the report said. “The pace reflects the enduring impact of the economic downturn, including continuing declines in patient visits to physicians, for people with and without insurance, and slower price inflation for these types of services in 2011.”

But the projections show spending growth accelerating as the economy recovers from the lingering effects of the recession, said Sean P. Keehan, senior economist in the CMS Office of the Actuary. The analysis has patients spending more on services during an anticipated much-improved economic environment from 2015 through 2021.

“It still remains to be seen if tools like higher deductibles and shifting to narrower networks & [are] going to have a mitigating impact on growth as it has in the past few years,” Keehan said.

Overall annual Medicare spending growth is estimated to drop to 1.3% in 2013, from 5.9% in 2012, in part because of a more than 30% physician pay cut that is scheduled to take effect Jan. 1, 2013, unless Congress intervenes. Total program spending also would be reduced by as much as 2% through a sequestration process that lawmakers had agreed to during federal budget negotiations in the summer of 2011, another scheduled cut that many lawmakers want to undo.

Under an alternative scenario envisioned by the actuaries, in which physician pay rates rise by 1% instead of dropping more than 30%, the year-to-year growth in Medicare spending would drop nearly a percentage point to 5% in 2013.

National spending growth on physician and clinical services would hit 8.5% in 2014 if the 2010 health reform law is not struck down by the U.S. Supreme Court and remains intact, the study concluded. Those gaining coverage, an estimated 30 million Americans, generally would be healthier and require less acute care than those who already have insurance.

“In addition, primary care physicians are often the first point of contact within the health care system for people gaining coverage,” the report said. “As a result, the newly insured are anticipated to devote a higher proportion of their total health spending to physician and clinical services.”

Without reforms, overall growth in spending on physician services would be 5.2% in 2014.

Total national health spending growth in 2021 is estimated to be virtually the same with or without the reform law. However, if the entire law is invalidated, fewer Americans would be insured through expansions in Medicaid or through the private market by purchasing health plans on state exchanges.

The national health expenditure report by the federal actuaries tends to overestimate first-, second- and third-year spending growth by 0.3 or 0.4 percentage points, CMS said in a separate document commenting on its historical accuracy. The trends report indicates that the Obama administration is spending health care dollars wisely, Dept. of Health and Human Services Secretary Kathleen Sebelius wrote on her department’s blog.

“We’re rooting out fraud and abuse and have stopped people across the country who are scamming the Medicare system,” Sebelius stated. “Medicare is making cutting-edge payment reforms, such as demonstrations launched by the CMS innovation center that will test models that save money and improve care, and help ensure that these models are replicated across the country.”

Republican lawmakers argued that the federal government should be alarmed by the report’s findings. The report is a repudiation of the administration’s health reform law, said Sen. Orrin Hatch (R, Utah) in a statement. Overall spending is projected to rise to 19.6% of the nation’s gross domestic product by 2021. Growth in health spending will almost double to 7.4% in 2014.

The administration’s policies on health care have not kept health expenditures in check, Hatch said. “Exploding health care spending is hardly the relief the president promised the American people.”

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How overall rise in health spending is expected to affect physicians

View in PDF

Click to see data in PDF.

Scheduled Medicare cuts in 2013 are projected to slow the growth in spending on physician services as well as the national growth rate, if they take effect. But federal actuaries say overall health spending growth is still largely on the rise again after being restrained during the recession. Dollar amounts are in billions, and percentages show growth from the preceding year. Figures for 2012 and later are projections.

Year National (Growth) Physician and clinical services (Growth)
2009 $2,495.8 (6.8% average from 2000-2009) $502.7 (6.3% average from 2000-2009)
2010 $2,593.6 (3.9%) $515.5 (2.5%)
2011 $2,695.0 (3.9%) $529.2 (2.7%)
2012 $2,809.0 (4.2%) $549.6 (3.8%)
2013 $2,915.5 (3.8%) $554.5 (0.9%)
2014 $3,130.2 (7.4%) $601.5 (8.5%)
2021 $4,781.0 (6.2%) $914.9 (6.2%)

Source: “National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands And Economic Growth Accelerates” Health Affairs, June (link)

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