Health Spending Expected to Grow

Sep 7, 2015, 08:48 AM by Melissa Harman

When I turned on the computer early the morning of July 29, 2015, the “inbox” was filled with articles from multiple media sources with such headlines as:

  • By 2014, Health Spending will be Nearly a Fifth of the Economy (The Washington Post Wonkblog)
  • Health Spending Projected to Grow Modestly, but Faster (USA Today)
  • Health Care Spending Again Accelerating (Politico)
  • Health Care Spending to Accelerate (Associated Press)
  • US Health Spending Growth Jumped to 5.5% in 2014 (Wall Street Journal)

It appears that health care spending is rising at a faster rate than at any time since the Great Recession; costs in 2014 rose 5.5 percent. Economists predict that the annual rise in health care costs will increase by 5.8 percent over the next decade.

In light of other recent stories that have hailed the Affordable Care Act (Obamacare) successes in bringing down the cost of health care, a June 20 Journal of the American Medical Association research article reports that 7.9 percent of Americans were uninsured during the first quarter of 2015. The report also noted that uninsured rates among Latinos dropped by 11.9 percentage points. The study’s author, Benjamin Sommers of Harvard, said, “The ACA may be associated with reductions in longstanding disparities in access to health care,” through improved access to care.

Reuters has reported that Sommers’ study notes that about 15.8 million adults gained insurance coverage under ACA since 2013 and about 7 million more adults surveyed said that they now had a personal physician. Another 4.8 million said that they can now afford their medications.

Doing the math

I never claimed to be a math whiz, but I just cannot get my arms around the numbers.

We have seen a recent (2012-2014) cooling off in the escalation of health care costs, which many have attributed to the ACA. In 2013, the US economy spent 17.4% of our GNP on health care, but Levey reports in the June 29 Los Angeles Times that “by 2024, healthcare is projected to consume 19.6 % of the economy.”

Hold on! That’s a pretty big increase in just nine years. Why the dramatic rise in costs?

I’m just thinking out loud, but I wonder if there ever was a real decrease in health care costs that could be attributed to the ACA. Was that downturn in cost more likely due to the economy being in the doldrums and even people with insurance postponing needed medical care because of high co-payments? Who has done that study?

I wonder, too, about the recent increase in spending. Is that just because more people are insured now and can afford to pay for services? Or is the predicted increase because old guys like me are consuming health care at a greater rate, living up to the concerns that Baby Boomers will break the bank for all of America?

If you factor in expanded coverage of care (ACA), that aging population (Baby Boomers) and society’s demand to live forever (coupled with a generous desire to remain beautiful and fit while doing so), you have the perfect recipe for the predicted $5.4 trillion in health care spending by 2024—or about 20 percent of the US budget. (Currently, health care spending is $3.1 trillion a year.)

Another factor driving up the cost of health care is the demand for newer and more effective pharmaceuticals. These usually fall into two categories: treatment for hepatitis C and treatment for cancer. Prescription drug spending increased 2.5 percent in 2013, but was up by 12.6 percent in 2014.

And, the ever-expanding Medicaid and Medicare rolls contribute to overall increases as well. Medicare and Medicaid turned 50 on July 30. Although we can celebrate the fact that older Americans no longer have to worry about access to health care, we still must be concerned about the skyrocketing cost associated with both programs. Through them, the government will become the dominant player as it assumes a greater share of the health care costs, from 43 percent in 2013 to 47 percent in 2024.

A brief history of health insurance in America

The provision of health care benefits grew out of the Kaiser Company’s need to keep its weapons-manufacturing plants staffed during World War II; Kaiser was the first to offer health care benefits to attract employees. The federal government had frozen wages for workers during the war effort, so the health benefits were a significant drawing card for employees.

Multiple efforts were made over the ensuing years to expand health care coverage, but it was not until Lyndon Johnson’s Great Society initiative that Medicare and Medicaid entered the American health care scene, to provide a safety net for seniors, the disabled, children and certain other groups. Until that time, the only way to get health coverage was to pay for a private policy out of pocket or join a group policy offered by an employer.

But, the unemployed and working poor had virtually no access to health insurance because they didn’t have an employer-provided plan and/or they had too little discretionary income to afford to purchase insurance outright. And many didn’t qualify for Medicare or Medicaid coverage.

In order to address the number of uninsured, most hospitals unofficially adopted a “cost shifting” model to help pay the costs incurred in treating the uninsured. In other words, insured patients paid more than their share of the cost of care because hospital charges were marked up to account for the anticipated failure to collect on charges from uninsured patients. This predictable math equation is not much different from the markup retail stores place on items to cover their costs associated with shoplifting or damage of goods in their store.

Over the past several decades, as the number of uninsured has grown due to economic downturns and welfare reform, so has the outcry from the insured that they were being charged more than fair market value for services in hospitals and clinics. Their unofficial subsidy to the uninsured was deemed discriminatory or unfair. Congress responded to the public’s demand to address the insurance and health care access problem by passing the Affordable Care Act as proposed by President Obama.

The ACA/Obamacare was intended to level the playing field by making insurance required of and accessible to everyone—whether through an employer or through state and federal insurance exchanges.

That health insurance was going to be affordable with four categories: Platinum, Gold, Silver and Bronze. And, a penalty was to be levied on anyone who purchased a health care policy that was a “Cadillac plan” – whatever that is! A year passes and the Bronze plan is defunct. And, more than 15 percent of the people who originally purchased health insurance have failed to sign up for the next round, instead electing to pay the penalty, since it is cheaper than the insurance.

Next, we see from the reports above that the cost of health care is going up! Should we be surprised? The hospitals had already built in “up-charges” to cover those who did not have insurance, through cost-shifting. It is unlikely those charges went away after the ACA was enacted.

More insured people use more insurance to consume more health care, resulting in increased health expenditures. No surprises there, right? What does remain a mystery: How do we get a handle on the costs?