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Why Health Care Costs Continue To Slow Down So Dramatically

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"Why Health Care Costs Continue To Slow Down So Dramatically"

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National health care costs rose by just 3.7 percent in 2012, according to a new report from the Centers for Medicare and Medicaid Services (CMS) published on Monday. The annual growth in medical costs has been slowing dramatically in recent years, with huge implications for reducing the projected national debt. According to CMS, the spending growth between 2009 and 2012 is the lowest ever recorded in the past five decades — and 2012 is the first time in more than a decade that health spending grew more slowly than the U.S. economy.

CMS’s data falls in line with a White House report released in November that found prices in the health care sector have been rising by 50-year lows since 2010. It’s still too early to determine exactly what’s causing the remarkable slowdown, but experts believe it could be due to a combination of several factors:

The ongoing impact of the economic recession: The country is still feeling the effects of the Great Recession, and more people are being forced to skip out on health care because they can’t afford it. When the November report was first released, Republicans claimed the sluggish economy was the primary reason for the recent slowdown in health costs, while the White House argued that other structural reforms to the health industry under Obamacare are now playing a greater role. This is still up for debate. Several outside reports have suggested the recession doesn’t explain the slowdown on its own.

More affordable prescription drugs: Spending on prescription drugs has continued to slow over the past several years, largely because of the rise of cheaper generic drugs. Several big-name drugs like Lipitor and Plavix lost their patent protections in 2011 and 2012, allowing cheaper alternatives to enter the market. Obamacare also makes reforms to Medicare’s prescription drug program, closing the so-called “donut hole” coverage gap so more seniors can afford their drugs.

More people enrolling in high-deductible plans: Increasing numbers of employers are beginning to offer high-deductible plans to their workers as a method of cutting down on health costs. These type of plans offer high out-of-pocket costs coupled with low premiums, which helps reduce costs in the private market. But they also end up shifting more health costs onto workers, and often lead people to skip out on health services because the co-pays are too expensive.

Relatively stable premiums: In addition to lower premiums resulting from high-deductible plans, overall premiums in the private insurance market didn’t skyrocket in 2012. CMS attributes part of that to low growth in enrollment. Insurers also may be doing their part to keep costs down, and government data suggests that fewer companies are requesting double-digit premium hikes — perhaps partly because of an Obamacare provision that requires them to spend 80 percent of their premium costs on delivering health care.

Reforms to Medicare’s payment structure: Spending growth in nursing home and retirement communities slowed in 2012, largely because of a one-time Medicare payment reduction to offset big increases in 2011. The Affordable Care Act also reduces the reimbursement rates to Medicare providers as a method of improving the quality and efficiency of care. Now, hospital reimbursement rates are directly tied to patient satisfaction.

The CMS’ report isn’t giving the Affordable Care Act much credit, citing the economic downturn as the primary factor in the recent trend. According to CMS, Obamacare had a “minimal impact on aggregate health spending through 2012,” although the effects of the health law’s individual provisions may have helped impact some of the “subcompenents of national health expenditures.” Although it’s too soon to tell the long-term impact that the Affordable Care Act may have on health costs, the continued slowdown does contradict Obamacare critics’ initial claims that the law would dramatically increase health spending.

If this trajectory continues, the government could end up saving billions. For instance, health analysts now believe that Medicare spending through 2022 may end up being $700 billion lower than initially projected.

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