BUSINESS
09/18/2013 04:02 pm ET | Updated Sep 03, 2014

Health Care Spending Continues To Rise Slowly Ahead Of Obamacare Expansion: Report

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National health care spending continues to grow at historically low rates this year -- but it will rise faster over the next decade as the economy recovers, the population ages and President Barack Obama's health care reform law adds millions to the health insurance rolls, according to a federal audit released Wednesday.

The government, businesses and households will spend $2.9 trillion on health care in 2013, which will be a 3.8 percent increase from the previous year, according to a report published in the journal Health Affairs by the U.S. Centers for Medicare and Medicaid Services Office of the Actuary. The total amounts to approximately 18 percent of the U.S. economy.

The Office of the Actuary, an independent auditor within the federal health care agency, found that health care spending has been growing at a rate of less than 4 percent each year since 2009, ahead of Obamacare's expansion of health insurance coverage that begins in 2014. The growth level represents a sharp decline from the average rate of 6.9 percent from 2000 to 2009, and is far below double-digit growth in the early 1990s and early 2000s, the report illustrates. The amount the U.S. spends on health care has almost doubled since 2000 and nearly quadrupled since 1990.

The lingering effects of the economic recession and sluggish recovery are the main culprits for the slower rise in health care spending this year and in recent years. People have lost health coverage, employers have shifted more costs to workers, and individuals' disposable income declined -- all of which have led people to forgo medical care. Medicare and Medicaid spending also grew more slowly during these years, according to the report.

Starting next year and continuing through 2022, health care spending it expected to grow more quickly, though still below the rates seen prior to the recession that began in 2007, the actuaries report. The jump includes the first eight years of coverage expansion under Obama's health law, called the Affordable Care Act, which the Congressional Budget Office projects will cut the ranks of the uninsured by 25 million by 2023.

"For the period 2014-22, national health spending is projected to rebound to growth rates observed prior to the recession, although growth will still be slower than that experienced over the longer term. This rebound in growth is based on improving economic conditions, coverage expansions in the Affordable Care Act, and the aging of the baby-boom generation," the analysis concludes.

health care spending
Note: ACA refers to the Affordable Care Act. SGR refers to the system that determines how much Medicare pays physicians. The Office of the Actuary assumes Congress will prevent scheduled cuts to doctors' pay, including a 24.7 percent reduction set to take effect Jan. 1.

Source: Health Affairs

A big jump in national health care spending will occur next year, when the Obamacare coverage expansion begins. In 2014, health spending is estimated to rise by 6.1 percent, the highest rate since 2007.

Spending from the health care reform law accounts for 1.6 percentage points of the growth expected next year, the report says. But just one-tenth of 1 percentage point of the increase in health spending from 2012 through 2022, or $621 billion, will be attributed to the health care reform law, the actuaries project.

Health care spending will grow an average of 5.8 percent a year between 2012 and 2022, the actuaries project. By the end of that decade, annual health care spending will reach $2.4 trillion, or 19.9 percent of U.S. gross domestic product. Federal, state and local governments will be responsible for 49 percent of that spending, according to the report. And while the growth may be slower than in the past, health care spending is still projected to escalate at a rate 1 percentage point faster than the economy, the report says.

health care spending

Source: Health Affairs

The recent slowdown in health care inflation and projections that spending growth won't return to record highs has sparked a debate about why spending is rising at a lower rate. Health care economists and other experts agree that the poor economy has been the major driver of slower growth -- but they differ on whether Obamacare's cost-control provisions have had an effect and whether health care providers are becoming more efficient.

The Medicare actuaries could quantify only modest cost savings attributable to Obamacare's reforms so far. The report based projections on the assumption that spending will rise again when the economy is stronger, Stephen Heffler, director of the National Health Statistics Group at the Office of the Actuary, said during a news conference Wednesday.

"While there certainly are a lot of factors affecting the health sector now and over the last few years, we will partake in a little more of a cautious approach in whether these changes are structural and permanent," Heffler said. "Over a long-run, historical period, there is a very tight relationship between economic growth and health spending growth, and until we see evidence that that relationship has been broken, it's very difficult for us to conclude that something structural has occurred."

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