Good news and bad ideas on health care spending

In the long run, the biggest issue for the federal budget involves spending on health care. That’s because health care costs have been increasing at a rapid pace.

At the same time, the American public clearly and strongly support the core federal health care programs.

Now, right now federal spending is not surging but declining. And, since the Affordable Care Act (Obamacare) had a lot of pilot programs for cost containment, it’s worth seeing what works well.

In addition, there’s some great news on health care right now.

Costs for health care have slowed down.

As Kliff reports:

During the economic downturn in 2009 and 2010, health-care costs grew at their slowest rate in decades. New data released Monday showed that slowdown continuing through 2011, with health-care spending growing by 3.9 percent for the third consecutive year.

Health-care costs grew slower than the rest of the economy in 2011 for the first time in more than a decade. For health policy analysts, that’s huge: When they try to get really aggressive on controlling costs, they usually aim for cost growth that is 1 percent higher than the rest of the economy.

How huge is this?

[1% over the growth in the economy is the] target for Medicare cost growth in the Affordable Care Act. If costs grow any faster, it triggers the Independent Payment Advisory Board, or IPAB, to make binding recommendations to Congress on the best way to hit that target.  Right now, health-care costs are falling well below that target, no interference from the IPAB necessary.

Analysts disagree about whether and to what extent this slowdown is due to the lingering effects of the recession or reflects early effects of the Affordable Care Act.

Not surprisingly, Kathleen Sebelius, Secretary of Health and Human Services, thinks the  new law mattered.

Growth in total private health insurance premiums remained low in 2011 at 3.8 percent. And the net cost ratio (which takes into account overhead and profits) for individual health polices declined thanks in part to the new 80/20 rule, which requires insurers to spend at least 80 percent of premiums on health care or provide rebates to their customers. . .

One provision of the law, called rate review, prevents insurance companies in all states from raising rates with no accountability or transparency.  These new standards ensure that insurance companies justify their actions if they want to raise rates by 10 percent or more.  So far, rate review has helped to save Americans an estimated $1 billion on their premium bills.

This trend bears watching.

Meanwhile, there are some bad ideas which shouldn’t be pursued

Cutting benefits by raising the eligibility age for Medicare is not a smart way to go. It adds to health care costs more generally. In fact, it could even cost more in federal funds since 65 and 66 year olds without coverage would put off medical care until 67. Then those folks would have more expensive illnesses because they hadn’t treated their diseases.

Another foolish approach is to limit the ability of the federal government to figure out the most effective medical interventions and to use this information to decide how to spend Medicare funds. IPAB, mentioned above, would do just this.

The healthcare law says the House must begin taking up the IPAB’s recommendations as soon as they’re made, and requires House committees to pass them quickly. Congress can only change the IPAB’s recommendations if it comes up with the same level of savings elsewhere in the budget. [Source]

Yet House Republicans passed a provision in its rules for to block the House from approving this advisory group’s decisions on a fast-track basis.

Public health spending saves lives, yet it has been getting cut at the federal, state and local levels. As Kaiser Health News reports:

Research links higher public health spending with reduced rates of infant mortality, preventable deaths in adults and other measures of community health.

“We’ve got strong evidence there is a connection between resources invested in public health and health outcomes,” said Glen P. Mays, a professor at the University of Kentucky whose 2011 Health Affairs article associated a 10 percent increase in local public health spending over more than a decade with reductions in death rates of between 1 percent and 7 percent. “That suggests that cutbacks in funding, certainly over time, could have some adverse health consequences.” [Source]

Yes, we all need to find ways to save money. But some approaches threaten to make matters worse, both for people’s health and our budgets.

Look for smarter approaches. Pennywise on health care is worse than pound-foolish.

Amy Fried

About Amy Fried

Amy Fried loves Maine's sense of community and the wonderful mix of culture and outdoor recreation. She loves politics in three ways: as an analytical political scientist, a devoted political junkie and a citizen who believes politics matters for people's lives. Fried is Professor of Political Science at the University of Maine. Her views do not reflect those of her employer or any group to which she belongs.