Officials: Slower health spending growth may boost jobs

Kelly Kennedy | USA TODAY

WASHINGTON — Buoyed by a report showing that health care spending has risen by the lowest rate ever recorded, White House officials said Wednesday a continuation of the trend could lead to more jobs and lower-than-expected costs.

Reduced health care costs for employers could lead to 200,000 to 400,000 new jobs per year by the second half of the decade, said Jason Furman, the chairman of the Council of Economic Advisers.

"If just half the recent slowdown in spending can be sustained, health care spending a decade from now will be $1,400 per person lower," Furman said.

The Council of Economic Advisers report released Wednesday also said health care inflation is the lowest it has been in 50 years.

The Affordable Care Act is, in part, responsible for the lower costs, Furman and other health experts agree, while Republicans say the declining rate of increases comes purely because of the slowed economy.

An economy hobbled by the recession and the economic crisis in 2008 played a role in some of the reduced spending growth, Furman said, but the report cited "structural change" caused, in part, by the law.

The report's release came as President Obama and his administration struggle with the political fallout associated with the problem-filled opening of the federal health care exchange, the online marketplace where uninsured Americans can shop for and buy insurance. The exchange's website, HealthCare.gov, opened Oct. 1 and has been hampered by outages and delays, particularly in its first weeks of operation.

The report did not surprise health economists, said Jonathan Gruber, an economist at MIT who worked with Massachusetts Gov. Mitt Romney's and Obama's health care laws. But it's "quite striking" that the growth rate continues to be low.

The White House, Gruber said, "obviously has a point they want to push, but I think they've got it right. But I think the health economists are still saying, 'Wait and see.' You take the news — it's great news — but we have to wait and see what will happen in the long term."

"What we do know is we were going nowhere fast," Gruber said. "We should let Obamacare play out and see if it can do even more."

ACTUARIES' REPORT

Republican critics of the law, such as Senate Minority Leader Mitch McConnell of Kentucky, remained skeptical, citing a report by actuaries for the Center for Medicare and Medicaid Services that said much of the reduced increase in spending was due to the economic slowdown and not the law.

That report, published in September in the journal Health Affairs, predicted a higher rate of increase in health spending than the White House report. However, the actuaries also credited the law for some of the reduced increases in costs, as well as a slower economy, the slow growth in public programs and increased cost-sharing requirements for patients.

The actuaries' report said health spending would increase after 2014 because of good economic conditions, coverage expansion in the law and the aging population. From 2012 to 2022, they expected national health spending to grow at an average rate of 5.8%. The White House report released Wednesday did not include projections.

The actuaries credited restrained Medicare spending, despite faster enrollment, which they attributed in part to "provisions in the Affordable Care Act." Going forward, the report states that out-of-pocket costs for consumers are projected to go down because of the law.

Brendan Buck, spokesman for House Speaker John Boehner, R-Ohio, said the slow growth was the "result of the terrible economy under President Obama, not his health care law."

"The idea that it's the economy is just silly," said Dean Baker, the co-director of the Center for Economic and Policy Research. "In 2008-2009 — fair enough, but now that we're four years out, no one could say with a straight face, clearly the economy is worse in 2013 than it was in 2008."

Instead, he said, greater attention to cost controls by private insurers and government programs, as well as higher co-pays, have prevented unneeded procedures.

"Suppose the opposite were happening," Baker said. "Suppose growth went up to 8%. Does anyone doubt we would blaming President Obama and the Affordable Care Act for that?"

Gruber said the lackluster economy plays only a small role because of the continued trend and because the economy doesn't affect Medicare spending trends. The overall trend, looking back to 1999, was a 7% yearly increase, he said.

COST SHARING'S ROLE

The White House report also cited increases in cost-sharing, such as high-deductible insurance plans, as helping to push down costs.

"Deductibles increased from 2006 to 2013," Furman said, but the pace of growth slowed from 2010 to 2013. "It didn't accelerate after the Affordable Care Act passed. In fact, it decelerated."

Because of cost reductions, the Congressional Budget Office reduced Medicare and Medicaid spending projections in 2020 by $147 billion since 2010, the report noted.

One key area in which the law helped drive costs down, the report said, are the provisions that allow Medicare to reduce overpayments to providers and health plans. Another factor, Furman said, are fines for hospitals that readmit Medicare patients within 30 days of their release and the increased use of accountable care organizations.

"For a long time, (readmission rates) were hovering around 19%, and now they are continuing to go straight down," Furman said. "A very important part of the structural story is the Affordable Care Act."

Much of the reduction comes because as the government makes changes to its huge entitlement programs, such as Medicare and Medicaid, the insurance industry tends to do the same. In this case, Furman said, they're changing the way they pay providers by forming accountable care organizations or medical homes, as well as by having the same expectations for readmission rates.

"If we pay hospitals 10% less, insurers will pay hospitals 7.5% less," Furman said, citing research that shows private insurers tend to change payments by three-quarters of what the government does.

The Consumer Price Index statistics released Wednesday showed that "year over year health inflation slowed," Furman said.

Private insurance spending grew at an annual rate of 1.6% in the past three years, Furman said, while Medicare spending had 0.0% growth rate and Medicaid spending was "actually minus 0.5%."

However, a recent survey found employers expect to see costs go up in 2014. Per employee benefit costs increased 2.1% in 2013, but the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, found that employers expected them to rise 5.2% in 2014.

Like Furman, they said the use of high-deductible health plans would continue to help slow growth. The survey includes 2,842 public and private companies with 10 or more employees.

The survey found that cost growth was lowest for small employers, whose costs rose about 1%; while it rose about 3.7% for employers with more than 5,000 people.

"The good news is that employers have already taken decisive action to slow cost growth, so they will be in a better position to handle the challenges ahead," said Julio Portalatin, Mercer's president. "But the impact of the ACA on enrollment levels remains a huge question mark."

Baker agreed that he can't make better projections than the council or the actuaries.

"Clearly Obama can't say it's 100% the ACA," he said. "But you get credit for the good things that happen, just like you get the blame for the bad things."

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