Health-Care Spending

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In the wake of the US Supreme Court’s decision late last month upholding nearly all of the Affordable Care Act (often called Obamacare), it is likely that the law’s expansion of private health insurance coverage — achieved through a requirement that most people buy or obtain insurance, combined with subsidies to make it more affordable — as well as its efforts to limit overall health-care spending will remain in effect. While no one seriously questions that the law will result in expanded health coverage, many experts doubt that its various efforts will slow the rate of growth in health-care spending. And a recent report from the Centers for Medicare and Medicaid Services (CMS) — the very agency responsible for carrying out the Affordable Care Act — predicts that health-care spending will accelerate in coming years.

As a Bloomberg News article on the report notes, CMS predicts that overall health-care spending (from all sources, public and private) will grow from 17.9% of the US economy this year to 19.6% in 2021. This prediction comes in spite of the fact that since 2009, health-care spending has held constant at 17.9% of the economy. In absolute dollar figures, health-care spending has still been growing — it grew 3.9% last year — but so has the overall economy, so that the difference in its share of the economy in recent years has been negligible. But as the country emerges from its current economic slump, CMS forecasts that health-related spending will accelerate once again — reaching a growth rate as high as 7.4% in 2014.

Only a small fraction of this predicted growth in health spending — an increase of 0.1% over current levels — will come from expanded health coverage through the Affordable Care Act, which CMS estimates will reach 30 million people. This additional cost is so small because people without health insurance often receive expensive care in emergency rooms, and the cost of care for the uninsured is currently borne largely by private insurance policyholders (in the form of higher premiums) and by taxpayers.

Most of the predicted growth in spending, then, comes not from the health law but from an aging population that will require more care, and from people returning to their pre-recession health-care spending habits. As a Wall Street Journal column noted last week, some health policy experts disagree that spending will shoot up once the recession ends. One reason spending might grow more modestly is that the share of insured workers with a policy deductable of $1,000 or higher rose from 18% in 2008 to 31% in 2011, according to the column. Naturally, when more money is coming directly from their pockets, people are more reluctant to visit the doctor or to undergo nonessential procedures. The growth of spending on imaging procedures, such as MRIs and CT scans, has seen a distinct drop. Of course, people may lose some peace of mind — if not actual medical benefit — by forgoing these procedures. Meanwhile, prescription-drug costs have dropped as more drugs lose their patent protection and are available in generic versions.

What do you think — is it a bad thing for health care to consume an ever-growing share of the economy? If so, how should this trend be reversed — should the government mandate that insurance providers pay health-care providers a lump sum to treat a condition, to limit unnecessary procedures? Should Medicare pay doctors the same way, or pay them less? Should more money be devoted to preventive health programs, even though most haven’t been shown to save money in the long run? Is “Medicare for all” the answer? Leave a comment below!

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