Health Care

Slower growth in health care spending

But annual increase is still about double the rate of inflation.

January 24, 2014
| By Pete Daly |
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Spending on health care may be headed into a fifth year of slower growth, while job growth in the industry is also declining, according to Altarum Institute, a nonprofit Ann Arbor-based research and consulting firm serving health care systems.

Altarum said national health care spending for the first 11 months of 2013 was 4 percent above the same period in 2012. While trending up since April — preliminary spending data for November 2013 showed year-over-year growth of 4.5 percent — expenditure growth was much higher in the past. Now it remains near the revised all-time low rate of 3.6 percent in 2011.

Depending on the December data, which isn’t in yet, 2013 could be the fifth consecutive year of health spending growth below 4 percent, a rate that had not been seen before in the 50-plus years of national health expenditure accounting.

“While 2013 looks to be another year of historically slow growth in health spending, the data currently suggest an upward drift during the second half,” said Charles Roehrig, director of Altarum Institute’s Center for Sustainable Health Spending.

“We expect this upward trend to accelerate in 2014 with the advent of ACA expanded coverage and a recovering economy. It will be interesting to see what the data say as the new year unfolds,” he added.

The health spending share of gross domestic product was 17.2 percent in November, the lowest reading since September 2012, indicating that health care may be absorbing a smaller share of the economy, especially if GDP growth accelerates in 2014, as widely predicted.

Health care lost 6,000 jobs in December, according to an Altarum estimate. The organization said that if this estimate stands, it will be the first monthly drop since July 2003, and only the second since at least 1989. The health sector added about two-thirds as many jobs in calendar year 2013 (208,000) as in 2012 (321,000), with particular slowing in hospitals and nursing homes. The health sector share of total employment fell to 10.71 percent, below the all-time high of 10.73 percent recorded in August 2013.

National health care prices in December were 1.1 percent higher than in December 2012, barely above the all-time low of 1 percent growth recorded in October 2013. The December 2013 12-month moving average, at 1.3 percent, represents a new all-time low for Altarum data. The organization said further, year-over-year, hospital prices grew 1.5 percent in December, physician and clinical services prices rose by two-tenths of 1 percent, and home health care prices actually fell, recording a minus one-half of 1 percent rate.

The statistics are from Altarum’s monthly Health Sector Economic Indicators briefs released by the Center for Sustainable Health Spending.

Lody Zwarensteyn, president of the West Michigan Alliance for Health, sarcastically commented that it has been said health care costs are no longer increasing by three times the rate of inflation — “only two times.”

While he concedes overall pricing in health care is starting to moderate, he noted the rate of increase each year “is still above general inflation, which means (health care) costs are increasing out of proportion to other costs.”

Zwarensteyn said some sectors of the health care industry have been “gearing up for quite a while to face health care reform. The word has been out for several years that you’ve got to get your act together if you want to survive.”

He said many in the industry have been starting the process of “belt tightening” — but he adds it is only beginning — by trying to find other ways to provide service at less cost. For example, he noted many employers are touting the successes of their employee wellness programs in helping reduce medical costs.

Another theory has to do with health care demand being held down by the high cost, which eventually would add pressure to reduce that cost.

“Some people are saying, in effect, that the many years of shifting costs to consumers, in the way of co-pays and deductibles, has been having an effect of dampening the demand for health care service,” said Zwarensteyn

However, he comes back to his initial point about the cost of health care in general: “Where it’s good news that it’s not going up as fast, it’s still going up faster than general inflation.”

Altarum Institute, which was formed by several faculty members at the University of Michigan more than 60 years ago, said it integrates objective research to offer client-centered consulting to health care systems, mostly veterans facilities.

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