World & Nation

U.S. healthcare spending growth remains low for fourth year

Healthcare spending growth
Fliers promoting the Get Covered Illinois health insurance marketplace sit in a box at a Bureau County Health Department office in Princeton, Ill.
(Daniel Acker / Bloomberg)

WASHINGTON — Soaring healthcare spending — which helped pave the way for President Obama’s health law — continued to moderate in 2012, the fourth year of a historic slowdown in how much the nation pays for medical treatment, according to a new government report.

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

And for only the third time in the last 15 years, health spending rose more slowly than the overall economy. That meant that healthcare shrank from 17.3% of the U.S. economy in 2011 to 17.2% in 2012.

The authors of the report, published in the journal Health Affairs, attributed most of the slowdown to lingering effects of the Great Recession, when millions of Americans lost health coverage or cut back on medical care.


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But experts increasingly believe the slowdown also reflects fundamental changes being made to the nation’s healthcare system as consumers, businesses and governments adjust the way they pay for medical care and as doctors, hospitals and other providers adjust the way they deliver it.

Many hope that could ultimately help make medical care more affordable.

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


Slower growth in government spending on the Medicare insurance program for the elderly in particular has already improved the federal budget outlook, helping to dramatically reduce 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.

While this slowdown in government spending may indirectly benefit taxpayers, millions of Americans who get commercial health insurance have yet to see much direct relief, however. Their insurance premiums keep taking a larger share of their paychecks, even as health plans require more out-of-pocket spending by policyholders.

“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.

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It remains unclear whether the slowdown in healthcare spending is enduring and 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 notes several factors contributing to the slow 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.

These kinds of 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.

“I am hopeful that we will continue to transform the system in ways to keep healthcare spending in check,” Chernew said.


The president’s 2010 health law, commonly called Obamacare, 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 impact, the new report concludes.

In fact, the authors said that between 2010 and 2012, the Affordable Care Act on balance increased overall healthcare spending by about one-tenth 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 co-authors.

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.

“There are a lot of factors going on,” Catlin said.

The biggest effects of the health law on health spending will likely to be felt in coming years when more Americans gain health coverage. The coverage expansion begins this year.

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