Will insurance expansion and industry consolidation result in higher healthcare costs, at least in the short term, and further stress the economy and the healthcare industry? That highly political question is being asked now in light of preliminary analysis of 2013 healthcare spending data.
Healthcare spending grew broadly in 2013, and especially in the second half of 2013, according to The New York Times in its Saturday, April 19, 2014 article entitled “Health Care Spending’s Recent Surge Stirs Unease.” According to government data, fourth quarter health care spending growth increased by 5.6 % in the fourth quarter of 2013, as compared to a 1.3 % increase in the first quarter of 2013. The 5.6 % increase was noted as the highest growth rate since 2004. Separately, the Altarum Institute, a nonprofit research group, reported that health spending started to climb in the summer of 2013, and that this February it reached a 7 year high.
According to some analysts, two trends are occurring concurrently. “Expanded coverage is happening simultaneously with the petering out of the recession’s dampening effect,” said Charles Roehrig, director of the Center for Sustainable Health Spending at the Altarum Institute. With expanded insurance coverage, it was expected that there would be a surge in short-term health spending, as previously unmet healthcare needs were addressed. The real question of interest, however, is whether that initial surge will be moderated or will continue and/or accelerate over time, as the new enrollees’ health status is assessed and treated and the costs of that fully enter the healthcare system.
The healthcare industry already is aware of the need to move toward population health management and value-based reimbursement systems, both for quality and for financial sustainability. We have noted a significant move in that direction in the past six months, as our law firm has seen a growing conviction on the part of payors and providers that healthcare reform is here to stay and that the current fee for service reimbursement systems no longer will be sustainable as the primary economic approach for the industry. We are seeing many interesting and innovative pilots, but also, more importantly, the beginning of true long-term movement toward lasting care delivery redesign. While pilots have their place, we have been warning of the danger of “aviation disease,” with too many pilots flying all over the place and buzzing around, resulting in a lot of motion without landing on an appropriate and meaningful commitment to large-scale healthcare delivery system redesign.
That view is shared by some commentators. The Affordable Care Act “was too heavy on insurance expansion and too light on delivery system reform,” according to Douglas Holtz-Eakin, former heard of the Congressional Budget Office and a prominent Republic economist. He characterized the Affordable Care Act as having “tons of projects and demonstrations. But the road to hell is paved with projects and demonstrations.” (And we always thought it was good intentions…)
Keep in mind, however, that the above data is preliminary, and the federal government often revises its numbers (witness the GDP numbers that routinely are revised after the fact). The New York Times concluded its article by sharing the caution by Jason Furman, Chairman of the White House’s Council on Economic Advisers, against “reading too much into a small number of reports” and suggesting that there is a “wealth of other data showing that premiums and the price growth of medical goods and services remained low.”
Without relying on the numbers, we directionally are not surprised by the increase in healthcare spending, given the simultaneous drivers of insurance expansion and Baby Boomer aging. So, while we can rest assured that the data will continue to be analyzed and that the 2016 presidential election will focus heavily on healthcare issues, we also know that it is the responsibility of the health care industry to lead the necessary changes in healthcare delivery – otherwise someone else will mandate it for us.