Health Growth Slows – Will We Lose Our Burning Platform?

Today’s Managing Health Care Costs Indicator is 3.9%

Click image to enlarge. Source 

Health Affairs just published the annual review of health care spending (from 2010) as calculated by the CMS Office of the Actuary.   The headline in the New York Times is “Recession Holds Down Health Spending,” and the Wall Street Journal says “Weak Economy Curbs Health Spending.” Total health care spending was up only 3.9% - and reached about $2.6 trillion. Overall increase in GDP was 4.2% - making this the first year overall GDP increased more than health care spending in my memory.

The study showed:

-        The effect of the Affordable Care Act on overall health care costs was 0.1-0.2% (by increasing access)

-        Hospital spending up only 4.9% (despite the aging of the population)

-        Professional services (mostly physicians) were up only 2.6%

-        Prescription drugs were up a measly 1.2% - reflecting more generic usage

Out of pocket medical spending was up only 2.8% - a surprise to me given that so many more families are covered by high deductible health plans. That’s an indication that many Americans have been deferring or foregoing health care that they would have received just a few years ago.

Increases by source of health care spending:

-        Employer Premiums: 6.3%

-        Out of pocket: 2.8%

-        Medicare: 7.0%

-        Medicaid: 9.2%

Government spending on health care is up – but don’t assume this means that government is less efficient. Rather, the Medicaid rolls went way up, and Medicare enrollment has increased as well as we continue to live longer and the baby boom ages in to Medicare. Ezra Klein had this graphic yesterday showing that effective inflation rate in government programs is considerably lower than that for private insurance plans.

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We know separately that maternity rates are dramatically down as a result of the recession. These are likely to return to prerecession levels in the future – which will lead to increases in hospital and professional costs.

Source Click Image to Enlarge 

It’s heartening to see health care costs leveling off – but I hope that the sense of urgency in redesigning our health care system will not recede.  Health care still costs far too much, and we must make meaningful efforts to be sure we get more value from the health care system.  Health care is crowding out other important public investments, including education – which can have a larger long-term impact on population health and life than many of our health care system expenditures. And even if Medicare is relatively “efficient,” we can’t afford this program as my generation becomes eligible.

2010 was a good year in terms of health care cost increases.  However, this wasn’t the payoff from great efforts on health care reform; it was rather the consequence of a grim economy.  We’ll have to redouble our efforts to control costs in the environment of economic growth we hope for in the future. 

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Smoking Cessation Saves Money

Today’s Managing Health Care Costs Indicator is $14.7 million

Massachusetts just announced that researchers at George Washington University have completed an evaluation of the state’s smoking cessation program –and found it offered a 3:1 return on investment.

Here’s a link to the peer-reviewed journal article.   

This study uses previously reported decreases in rates of cardiovascular hospitalizations among participants, and then monetizes these. The decreases are jaw dropping:

-        46% for acute heart attack

-        49% for heart disease

-        32% for nonspecific chest pain

Program cost was about $183 per participant (for drugs and counseling), while decreased hospitalizations were valued at $571.

The strength of this analysis is only moderate. The weakness of this design is that those who were motivated to use the program were more likely to have lower costs than the general Medicaid population anyway. I would have liked to see the original study show total cardiovascular diease totals, to help insure that this finding does not represent selection bias.  Still – there were likely to be other health claims cost benefits which are not counted in this analysis.

Most states have used little or none of their tobacco settlement money to encourage smoking cessation. Massachusetts has gained real benefit by continuing to fund smoking cessation. States which are cutting smoking cessation programs due to their budget shortfalls can look forward to higher medical claims costs.

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Contrasting Future Prospects for Health Insurers and Hospitals

Today’s Managing Health Care Costs Indicator is 23,000

Click image to enlarge.   Source below

This diagram shows that health insurers’ stock prices have outperformed the overall stock market over the last three years.  As Sarah Kliff of Wonkbook notes, it’s ironic that the health plans opposed health care reform, but are likely to profit significantly from the Affordable Care Act with its increased government funding of privately-procured health plans.

On the other hand, Citigroup just released a sharply negative earnings outlooks for hospitals. (Registration required).  As a result, stock prices of HCA, Tenet, and the other major for-profit hospital companies lost ground – and they are already much lower than they were a year ago.

What does it mean that hospital stocks and health plan stocks are moving in different directions?

The stock market is betting that there will be lower hospital utilization going forward, and hospitals are stuck with expensive capital improvements and will be paying back bondholders for decades to come.  Health plans are increasingly developing the infrastructure to sell services to providers seeking to become Accountable Care Organizations. This is a new revenue source, and also makes providers less likely to effectively compete in the health insurance market on their own. 

In the meantime, the excellent jobs report this morning (200,000 new jobs) included 23,000 new jobs in health care.Since health care represents 1/6 of the economy, this at least means that other sectors are adding jobs faster than health care.  Perhaps the reshuffling has already started.

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