Growth in health care spending has slowed recently.  Why?  Supporters of the Affordable Care Act (ACA) – aka Obamacare – says its due to the controversial law, although most of the ACA’s provisions are yet to take effect.  However, new evidence shows that the economy is the cause of the lower rate of medical cost inflation.  Evidence also predicts this is temporary, with health care costs expected to jump significantly as the ACA kicks in and the economy recovers.  Here’s the scoop.

Recent Pace in Health Care Cost Growth:

There has been a string of good news for health costs and spending in the past few months. The Congressional Budget Office (CBO) 10-year spending projections for Medicare dropped 2 percent, compared to its previous estimate, and its Medicaid budget projection fell 5.5 percent. The Kaiser Family Foundation reported relatively slow growth for employer-sponsored insurance (ESI) average premiums in 2012 – 4 percent for family health coverage. USA Today reported health spending as a share of the economy shrank to 17.04 percent last year, compared to 17.12 percent in the year before.

One key statistic seemed to explain much of the good news. The Centers for Medicare and Medicaid (CMS) Office of the Actuary (OACT) found that national health expenditures grew 3.9 percent each year from 2009 to 2011, the lowest level of growth in 50 years. Health costs still grew faster than inflation but were a big improvement on growth rates of the early 2000s, which reached almost 10 percent per year.

Health Spending Slowed Because the Economy Slowed:

But the good news might only be temporary. A new analysis from the Kaiser Family Foundation finds that 77 percent of the drop in health care spending was because of a broad economic downturn during the Great Recession. Though the recession ended in 2009, health spending lags behind economic changes over a period of six years, the brief says.

A quick overview of the findings:

Cost Control Efforts in Public and Private Sectors:

While costs are expected to increase more rapidly in the near future, both the public and private sectors are engaged in a wide variety of efforts to contain costs, with payment reform and delivery reform given the highest priority.

The health reform law encourages several Medicare payment reform models, such as Accountable Care Organizations (ACO) and bundled payments, intended to create incentives for Medicare providers to curb unnecessary medical care. Wasteful health care accounts for about one third of health care spending, and is estimated to reach up to $1 trillion each year.

Care coordination models for Medicare-Medicaid dual eligibles, which account for a third of the Medicare and Medicaid budgets, also have the potential to reduce costs and improve care.  Medicaid health plans and Medicare Advantage Special Needs Plans for dual eligibles (D-SNP) are central to state demonstrations testing that theory. Private health plans and large employers also are focusing on care coordination and payment reform to keep costs down and improve care.

For more on the subject, see the payment reform section of this blog.  Also check out my post, 7 Ideas to Reduce Costs and Improve Outcomes in Medicare and Medicaid.