4 Talking Points on America's Healthcare Spending

 Here are four things to consider in light of the government's early estimates on healthcare spending.

The U.S. Department of Commerce has issued an early estimate on the gross domestic product for the first quarter of 2014, which contains the finding healthcare spending is rising at a more rapid rate than it has in the past.

Real GDP increased a mere 0.1 percent from the fourth quarter of 2013 to the first quarter of 2014, down from the 2.6 percent pace from the third quarter to the fourth quarter of 2013. Total healthcare spending during the first three months increased by 9.9 percent to $43.3 billion, up from 5.6 percent in the fourth quarter of 2013. This is the highest rate of growth since 1980. Spending reflects amounts spent in purchasing health insurance, along with drugs, exams and other medical care.
[Editor's note: The government's second estimate, based on more complete data, will be released May 29 with a final version expected June 25. The White House said expansion of insurance coverage under the PPACA during the first quarter complicates the interpretation of other available data, meaning the estimates issued today "could be revised significantly" for the next set of estimates. The Commerce Department also cautioned that its figures could be heavily revised.]

White House officials framed the healthcare spending increase in a positive light, attributing the leap to greater demand for healthcare services. As Americans gain health insurance coverage, some for the first time, they are visiting physicians and purchasing more medical products. The White House distinguished healthcare spending from healthcare prices, pointing out that the latter grew "exceptionally slowly" at an annual rate of 0.5 percent, or 0.9 percent on a year-over-year basis.

Here are a few initial thoughts.  

1. Some are saying the increase was expected and necessary. Actuaries at CMS and many other healthcare experts have projected increases, and significant ones, to healthcare spending in 2014 since the since the law went into effect. CMS predicted a 6.1 increase for 2014 based on the assumption 11 million Americans would gain insurance coverage, for instance. The precise figure, at nearly 10 percent, may draw some attraction, but upward spending in itself should not.

Paul Levy, prominent blogger and former president and CEO of Beth Israel Deaconess Medical Center in Boston, had a few thoughts on the government's latest figures on his blog, Not Running a Hospital.

"As we saw in Massachusetts when universal access was provided, if you give people health insurance, they will use it," he wrote. People are seeking medical care sooner when they have symptoms, others are getting preventive care and detecting serious illnesses and conditions earlier on, and those who require more extensive care are seeking such instead of deferring care and ending up in a hospital emergency department, said Mr. Levy.

When thought of this way, it's difficult — or unethical — to see increased healthcare spending as a bad thing. "Without the full course of treatment they are now getting as insured patients, we would have 'saved' a lot of money in treatment. Some, though, would have died prematurely or suffered from extended morbidity," wrote Mr. Levy.

2. Others are accusing the administration of changing its tune. There seems to be two different, even conflicting, messages coming from government officials. A spokesperson for the White House said the spending increase, or increase in utilization, "is neither a surprise, nor a cause for concern." But so much of the healthcare reform law's ultimate goal was to reduce the cost curve of the American healthcare system. The White House has said so itself: a major goal of the healthcare reform law is to "bend the growth curve of healthcare spending."

This isn't the first time Americans have picked up an inconsistent narrative from the White House, as President Obama previously promised voters, "If you like your healthcare plan, you'll be able to keep your healthcare plan." Then, last fall, some Americans received cancellation notices from their health insurers.  

3. The healthcare reform law isn't the only reason for the increase. Expenses for healthcare rose at a 5.6 percent annual rate in the fourth quarter of 2013, the fastest pace in 10 years. At the same time spending picked up in 2013, before the exchanges started, Gallup reported an increase in the number of people without insurance. These conflicting ideas suggest the spending increase was driven by people who already had coverage using more care, rather than people gaining coverage driving spending.

The other factor at play is the economy. The recession and its sluggish recovery left many unemployed Americans without health insurance and limited health spending. Since late 2011, employers added 2.6 million jobs, and the unemployment rate fell from 8.5 percent to 6.7 percent. It is unclear, however, how many of these added jobs offer employer-sponsored health insurance.

4. The trend raises bigger questions. Such as, are Americans any healthier? The White House attributed the spending increase to more healthcare utilization, but that is not a complete answer. There are the tricky subcategories of valuable utilization and unnecessary utilization. Is this level of spending driven by people seeking necessary care they previously postponed due to lack of coverage, or unnecessary care out of eagerness that they gained coverage and can now access physicians?

Another question: How long will increased spending — or, according to the White House, increased demand — last?


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