Healthcare Costs Are On The Rise Again

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Healthcare Costs Are On The Rise Again

Healthcare costs resumed their inexorable rise in 2014, after flat growth for the preceding four years. ACA expansion is the primary driver.

Every year the nice folks over at the Centers for Medicare and Medicaid Services (CMS) release a report on national health expenditures.  The most recent report, titled National Health Expenditure Projections, 2014–24, was of interest because after many years of stagnant healthcare cost growth, costs were seen to rise in 2014.

Wait, you say, haven’t healthcare costs always been rising?  Well…no.

While there are many ways to look at the rise in health care cost, examining healthcare cost as it relates to a rise in GDP is of most interest. This reflects the health spending share of the economy. We would certainly fret less about rising healthcare costs if they rose in step with a growing economy. This would mean that, as a percentage of the economy, health care would not be more expensive over time.  Looking at healthcare cost in this light clearly demonstrates a recent significant moderation in the rise of healthcare costs. To get a sense of ‘moderation’ of healthcare costs, it helps to have a sense of where this all began.


The Sixties: The beginning of the health care cost revolution

The introduction of Medicare in 1965 fueled an explosion of spending.

The introduction of Medicare in 1965 fueled an explosion of spending. Healthcare grew at a much faster rate than the rest of the economy, and went from accounting for 5% of GDP in 1960 to almost 12% of GDP in 1990. Healthcare continued to consume an ever larger share of the national pie as the years progressed, but growth occurred at a slower pace in the 21st century. In 2013, healthcare spending stood at 17.4% of GDP, (the highest ever), but the years 2009-2013 actually had no growth in healthcare spending relative to GDP. This meant healthcare spending remained flat at 17.4% of GDP from 2009-2013. (CMS data)


Cost moderation: Smarter administrators or smarter doctors?

A number of different reasons have been put forward, but most health economists seem to agree something structurally was different.  Sitting in the trenches, as I do in the world of private practice cardiology, that cost trend seemed to fit with what I was seeing in my world. The world of cardiology is a small window, but is a window, nonetheless.

Coronary stent (Wikipedia)
(Photo credit: Wikipedia)

The big drivers of costs in cardiology were clearly imaging and placement of elective coronary stents. In 2008, 7.5 million echocardiograms were performed at a cost to Medicare of 1.4 billion dollars. The same year 3.4 million SPECT studies were done at a cost of 1.3 billion dollars. Not surprisingly, reimbursements (in the outpatient setting only) were slashed for nuclear medicine studies by 36% and for echocardiograms by 25%.  Clearly, the administrators at CMS were able to score significant cost reductions in this manner with almost no effort.

While cost containment in the hospital setting due to reduced reimbursements occurred as well, cost reductions had a more ‘grass roots’, bottom up flavor when it came to elective coronary stenting. The aptly named COURAGE study was released in 2007 to much fanfare while I was still a cardiology fellow. The study was a randomized control trial that took aim squarely at the practice of elective coronary stenting. The conclusions of the trial were fairly definitive: coronary stenting was NOT superior to medical therapy for the vast majority of cases. The results in changing practice patterns are evident to me in my local community, and nationally. A recent JAMA study clearly demonstrated significant reductions in the volume of non-acute coronary stenting from 89,704 in 2009 to 59,375 in 2014. This was, seemingly, a nice example of the way its supposed to work: Shifts in evidence base guiding clinical practice in a direction that is better for patients, and cost efficient.


Why are costs rising again?

In 2014, healthcare expenditures were projected to increase 5.5% (year over year), the first time growth would be higher than 5% since 2007

Unfortunately, costs do appear to be on the rise again.  In 2014, healthcare expenditures were projected to increase 5.5% (year over year), the first time growth would be higher than 5% since 2007. As a consequence, healthcare expenditures are now projected to be 17.7% of GDP, the first increase in the healthcare share of the economy since 2008.

What happened?  Did cardiologists start ordering more tests?  Are there suddenly more unindicated stents going into patients? The answer is, unfortunately, simpler than that.

According to the economists at CMS, the rise in healthcare costs are mostly related to the expansion of healthcare coverage under the Affordable Care Act (ACA).  Not surprisingly, subsidizing coverage for millions of people costs money.

Amusingly, the White House released a paper in 2013, entitled“Trends in Healthcare Cost Growth and the Role of the Affordable Care Act,” that attempted to show a link between the ACA and the slowing of healthcare costs. This was despite the fact that health care cost reductions preceded the introduction of the ACA. No information from the White House has been forthcoming on the ACA and cost since.

So, yes, healthcare costs resumed their inexorable rise in 2014, after flat growth for the preceding four years. The primary driver for this change is the expansion of insurance coverage to millions of people through the ACA. The ACA may reduce costs in the long term (debatable), but there is little doubt that the ACA raises costs in the short term.


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