U.S. healthcare costs keep rising but at slower pace

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WASHINGTON — The relentless rise in healthcare spending — which had threatened government budgets and helped pave the way for President Obama’s health law — continued to moderate in 2012, the fourth year of a historic slowdown, newly released federal data show.

Overall spending on healthcare rose less than 4% in 2012, less than half the rate of a decade ago, independent economists at the U.S. Centers for Medicare and Medicaid Services concluded.

For only the third time in the last 15 years, health spending grew more slowly than the overall economy as measured by the non-inflation-adjusted U.S. gross domestic product. That meant that healthcare shrank slightly as a share of the U.S. economy, from 17.3% in 2011 to 17.2% in 2012.


“These are historically very low numbers,” said Gary Claxton, vice president of the nonprofit Kaiser Family Foundation, who closely follows healthcare costs.

The new data add fuel to a debate over whether the slowdown signals lower healthcare inflation for years to come. The stakes are high. Already, the lower cost increases have significantly improved the outlook for the federal budget.

The authors of the report, published in the journal Health Affairs, attribute the slowdown primarily to lingering effects of the Great Recession, when millions of Americans cut back on medical care.

But other experts believe it also reflects fundamental changes in how consumers, businesses and governments pay for medical care — and how doctors, hospitals and other providers deliver it. Many hope that will make medical care more affordable and continue the improvement in the federal budget outlook.

White House officials quickly linked the new data to the president’s 2010 law.

“The slowdown in the rise of healthcare costs, thanks in part to the Affordable Care Act, has already begun to pay dividends in the form of savings for American consumers, lower costs for businesses, and our rapidly declining deficits,” Jeanne Lambrew, deputy assistant to the president for health policy, wrote in a blog post Monday.

Slower growth in government spending on the Medicare insurance program for the elderly — much of it mandated by the law — has already dramatically reduced projected deficits.


Medicare spent just 0.7% more per beneficiary in 2012 than it did in 2011. Just five years earlier, per-beneficiary spending was increasing 5.4% annually.

Although this slowdown in government spending may indirectly benefit taxpayers, millions of Americans who get commercial health insurance have yet to see much direct relief. Their insurance premiums keep taking a larger share of their paychecks, as employers shift more healthcare costs to employees.

“Consumers who are covered with private health insurance have clearly experienced an erosion of coverage,” said Charles Roehrig, an economist who directs the nonprofit Altarum Institute’s Center for Sustainable Health Spending.

The average total cost for a family health plan provided through an employer — which is split between employer and employee — hit $16,351 in 2013, according to an annual survey by the Kaiser Family Foundation and the Health Research & Educational Trust, an affiliate of the American Hospital Assn.

The employee share of that premium was $4,565, up about 6% from 2012.

Opponents of the Affordable Care Act, who have criticized the law for not saving consumers money, seized on the spending data to redouble their attacks.

“This report shows that the administration’s promise that Obamacare would rein in the skyrocketing healthcare costs is false,” said Sen. Orrin Hatch (R-Utah).


It remains unclear whether the slowdown in healthcare spending has continued or whether it will ultimately benefit consumers more directly.

The authors of the latest report voiced skepticism that the slowdown will persist in the nation’s strengthening economy. In the past, health spending has accelerated after the economy has emerged from downturns.

“More historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health sector and the overall economy,” the authors concluded.

But the report identifies several factors contributing to the slower growth in health spending that are unrelated to the economy, including the increasing use of generic drugs and changing government payment policies that have slowed spending on nursing home care.

Other economists have identified still other factors that may be slowing cost growth, including changes to health insurance plans that make consumers pay more out of pocket for their care. That provides new incentives for consumers to economize.

High-deductible health plans are becoming increasingly popular and are widespread on the new insurance marketplaces created by Obama’s health law.


“There are fundamental changes going on in terms of attitudes toward health spending,” said Michael Chernew, a health economist at Harvard Medical School.

For example, Chernew noted that new medical tests and procedures are now coming under increased scrutiny before they are widely adopted. At the same time, insurance companies are working on new models to reward doctors and hospitals that improve quality while also controlling costs.

The president’s health law includes provisions to accelerate some of these transformations, including new incentives for doctors and hospitals to provide high-quality care to Medicare beneficiaries more efficiently.

To date, however, these changes have had minimal effect, the new report concludes.

In fact, the authors said that from 2010 to 2012, the Affordable Care Act on balance increased overall healthcare spending by about one-10th of a percent.

The increase was driven in part by a provision that provides additional prescription drug coverage for seniors on Medicare and by another that allows dependent adults to remain on their parents’ health plans until they turn 26, said Aaron Catlin, one of the report’s coauthors.

Yet, another provision, which requires insurers to spend more of their customers’ premiums on medical care rather than administrative expenses, such as salaries, has helped slow spending.


Twitter: @noamlevey

of their customers’ premiums on medical care rather than administrative expenses, such as salaries, has helped slow spending.

Twitter: @noamlevey