6 Good and Bad Reasons Health Care Costs May Slow
Life + Money

6 Good and Bad Reasons Health Care Costs May Slow


In addition to providing affordable healthcare to the uninsured, one of the main goals of Obamacare was to drive down the nation’s overall health care spending. It was a bold ambition, given that health care spending makes up a sixth of the country’s GDP.

Now, three years after the law’s passage (and still a few years before it’s fully implemented), it’s clear that the growth in health spending is slowing. Some of that is due to the Affordable Care Act, but there are also a number of other factors tamping down costs.


Price Waterhouse Cooper's Health Research Institute's projection for 2014 is a net growth rate in health spending of 4.5 percent, down from 11 percent in 2007. The Congressional Budget Office in its most recent projections reduced its estimates of spending for Medicare and Medicaid programs by $239 billion for the 2013-2022 period, compared with its estimates just last year.

While experts agree on the need to increase efficiency and accountability in our health care system, some worry that certain changes made to save money could negatively impact the quality of care consumers receive by forcing quality doctors out of the system.

Here’s a look at six factors contributing to a decline in health care inflation.

1) It’s the recession, stupid

Economic factors outside of the health system contributed to 77 percent of the slowdown in health spending in recent years, according to an analysis by the Kaiser Family Foundation earlier this year. Looking at data from previous recessions, the foundation found that recessions produce a major, but delayed effect on health care spending that historically lasts six years. The Great Recession ended in 2009, so lingering effects remain.

2) Tying Medicare hospital payments to patient outcomes

One provision of the Affordable Care Act reduces the payments Medicare makes to facilities that have unwarranted readmissions for certain diseases like congestive heart failure and pneumonia. PwC found hospital readmissions dropped by nearly 70,000 in 2012. The incentives have resulted in savings in costly readmissions as well as improvements in care, as some hospitals now have nurses closely monitor patients once they're home, says Jon Gruber, a professor of economics at MIT. "Hospitals are doing more to check in after you're being discharged and keep an eye on you."

BUT… Helen Levy, a research associate professor at the University of Michigan's Institute for Social Research, says "it's not clear readmissions are a slam dunk" resulting in savings, since hospitals may turn to costly alternatives, like keeping patients in the hospital longer. She added that programs penalizing bad outcomes inadvertently hurt high-quality hospitals, the ones that tend to take the sickest patients with complex cases.

3) The shift to high-deductible health plans

More companies are now offering high-deductible health plans to their employees, which shift more of the burden of health care costs to employees who need to meet a high deductible before their insurance coverage kicks in. While in 2013, only 17 percent of employers were offering high deductible plans, 44 percent of employers are now considering them as their only option, according to the PwC report. "That's a major uptick and an indication that high deductible health plans are here to stay," says Rick Judy, principal in PwC's health industry advisory practice. The plans offered in the exchanges have high deductible health components as well.

Since check-ups are not typically subject to deductibles, he says it shouldn't dissuade people from preventative care. Gruber sees the move to HDHPs leading to a reduction in elective surgeries, or waiting longer to see if you get better rather than rushing to see the doctor.

BUT… Mark Fendrick, a professor of medicine and public health and director of the University of Michigan's Center for Value-Based Insurance Design, thinks it could potentially have more serious negative repercussions, leading Americans "not to purchase high value services that improve health," like medications to manage chronic diseases, diabetic eye exams and high value diagnostic tests, which are subject to deductibles.


4) Growth in accountable care organizations

Accountable care organizations (ACOs) are groups of doctors, hospitals, and other health care providers that form networks with the shared goal of keeping costs down and coordinating better care. They’ve been around since 2006, but they got a big boost from Obamacare, which ties higher Medicare payments to better patient outcomes. ACOs could save Medicare $940 million over the next four years, according to the Department of Health and Human Services.

BUT… A provision in the Affordable Care Act requires that accountable care organizations manage a population base of at least 5,000. This is causing more hospitals and physicians to consolidate, which could result "in a shift in market power from health plans to providers that can increase costs," says Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation at the University of Michigan.

5) Care is moving to more affordable settings

The number of consumers using low-cost retail clinics has tripled over the past five years. Experts expect the demand for services in such clinics to continue to grow, given the physician shortage and the convenience of such centers. Drug stores like CVS and Walgreen operate more than 1,000 such clinics throughout the country. Costs there can be 80 percent less than at an emergency room, and 35 percent less than at a primary care physician’s office.

BUT… Critics contend that if patients forego primary care visits entirely, the retail clinics might miss long-term medical issues or provide inadequate preventive care.

6) Networks are getting smaller

In order to cut the cost of insurance on both public and private exchanges, some insurers are scaling back the size and scope of their network, cherry-picking which hospitals they’ll affiliate with in a given city.

BUT… While that’s good for upfront costs and lower premiums, “the use of narrow networks may also lead to higher out-of-pocket expenses, especially if a patient has a complex medical problem that’s being treated at a hospital that has been excluded from their health plan,” the PwC report says.