Health care spending slows

Health care spending slows

January 15th, 2012 in Opinion Times

New federal data shows that the nation's annual increases in health care spending slowed to a 3.8 percent pace in 2009 and a 3.9 percent rate of increase in 2010. Those figures mark the slowest rise in annual health care spending in 51 years, since the government began recording such data. Whether the slowing rate of health care spending is encouraging, however, is an open question.

The spending slowdown in health care comes in the wake of the Great Recession, which devoured jobs and wounded the economy generally for several years after the biggest financial crisis since the Great Depression. From the pre-recession job peak in December 2007 to the February 2010 bottom of the job-loss horror, for example, the nation lost around 8.8 million jobs. Many laid-off workers lost their health insurance benefits as well.

The broader tightening of wages and consumer spending among insecure workers who managed to hold onto their jobs further compelled many Americans to sharply curtail their spending on health care. Overall, Americans reduced visits to doctors, had fewer optional surgeries and hospital stays, and either dropped prescriptions drugs or turned to cheaper generics. The potential bright spot in the spending slowdown is that hospital admissions slowed partly due to better screenings, more pharmaceutical-based treatments and more out-patient surgeries.

The slower rate of spending still pushed up the United States' share of health-care spending to 17.9 percent of the total economy in 2010. That's a staggering figure -- one that the nation simply cannot afford. Every other industrially advanced nation in the world has universal health care, relatively higher health indices and far lower per capita health care costs as a percentage of gross domestic product. Their share of total income, or GDP, spent on health care ranges from around 8 percent 13 percent. Most are in the 9-to-11 percent range of GDR.

The slowdown in overall health care spending in the United States also came even as federal spending on health care jumped 40 percent between 2007 and 2010, to $743 billion. That resulted mainly because more out-of-work people and low-income people qualified for Medicaid. By contrast, Medicare spending rose by just 5 percent in 2010, the least in more than 10 years.

Subtracting these increases, however, would show consumers spending even less on health care than the total figures suggest.

The most troubling aspect of the slowdown on health spending is that it suggests that a large percentage of Americans are going without seeking medical care when they may need it most. That assumption is further underscored by the fact that health insurers' insurance premiums in 2010 rose faster their spending on health care benefits for the first time in seven years. Their total premium take soared to $849 billion in 2010, while they paid out just $746 billion on benefits.

The widening margin between premium revenue and benefit payoffs likely means insurers are raising rates, and profit margins, more than is justified. That's especially troubling because most employer-based and individual policies also require workers to pay regularly increasing costs for premiums, higher deductibles and co-pays.

This inequitable dynamic begs the implementation, scheduled for 2014, of the Affordable Care Act, which will require insurers to pay at least 80 percent of premium revenue for customers' actual health care benefits. The disheartening caveat is that Republicans want to control Congress and repeal the Affordable Care Act, though they propose absolutely nothing to replace it or to make delivery of health care more affordable and more efficient.