Health Cost Growth Is Down, Or Not. It Depends Who You Ask

Studies show that health care costs have been rising more slowly than at any time in the last fifty years, but the American people think they are rising faster than ever. Who’s right, the experts or the public? They both are, they just look at the problem from different perspectives.

The most recent government study of national health spending was published by the Centers for Medicare and Medicaid Services and found that health spending grew by a very modest 3.7 percent in 2012, the fourth straight year of historically low increases in spending. Our annual survey of premiums for employer based health insurance in 2013 told a similar story. Premiums rose just 4 percent. There is debate among experts about how much of the slowdown is due to the weak economy and how much is due to changes in the health care system but everyone agrees both factors have played a role. The government report says the slowdown is mainly due to the economy. Our own analysis also found that the economy explains most of the diminishing rate of growth but changes in health insurance and health care have also played a significant role. There is uncertainty about when and how rapidly costs will accelerate when the economy improves, but no one disputes that the slowdown is real.

No one that is except the American people, who see health costs from a different perspective. In our monthly tracking poll, almost sixty percent of the American people said “the cost of health care for the nation has been going up faster than usual in recent years”. Less than a third say costs have been going up “about the same as usual” with just 4 percent saying they were growing “slower than usual”. No one (correctly) said they were going down.

One reason people see health costs differently than experts do is that what they pay for health care has been steadily going up. They pay less attention to the fact that they are going up more slowly than before. For example, the average deductible five years ago in employer plans was $735 per person and by 2013 it had grown to $1,135. Premiums have been growing at historically low rates, but the average family premium in an employer plan in 2008 was $12,680 and in 2013 it was $16,351. Over that time the share of the premium paid by workers rose from $3,360 to $4,560.

What people pay for health care has also been going up when their wages have been flat or even falling in real dollars. The result is that when people look at their family budgets and try to make ends meet, the pain level from paying their health care bills does not necessarily feel smaller to them and may feel larger.

An estimated 1 in 3 Americans report having difficulty paying their medical bills. They have had problems affording medical bills within the past year, or they are gradually paying past bills over time, or they have bills they can’t afford to pay at all. People also hear and read a lot about health care costs in the media; in stories about the Affordable Care Act, or the federal budget, or about waste fraud and abuse in the health care system. That gives them a sense that costs are rising even if studies show they are rising more slowly.

And, as the Wall Street Journal reported recently, people can be shocked by confusing medical bills and high health care prices. It’s a simple equation: price times volume of services equals spending. The studies reporting the slowdown focus on the change in total national health spending, but people focus on the eye-popping prices.

For its part, the Affordable Care Act attacks both the health spending problem experts worry about and the affordability concerns people have, chiefly by reducing future increases in Medicare payments and by providing coverage to a projected thirty million Americans with tax credit subsidies for many of them, lowering their out-of-pocket expenses. Other provisions of the law dealing with costs appear to be working well, such as its review of outsized premium increases in the non-group market and requirement that insurance companies devote most of their premium dollars to patient services. The Affordable Care Act’s ultimate impact on costs is hard to gauge but it puts downward pressure on costs for the system and consumers. The Congressional Budget Office projects that Medicare will cost significantly less in the future than previously thought, both because of the ACA’s changes to Medicare’s payments, as well as the general slowdown in health spending growth.

There are huge vested interests in the health care industry with a stake in declaring that health costs are under control, because the more the nation believes the health cost problem is solved, the less likely we are to keep the pressure on to try new, more innovative, and perhaps more painful cost control strategies. We have not seen this many years in a row of slow growth in spending like this before and we can be hopeful that cost growth will remain modest, but we should also be careful not to declare victory too soon, and we should remember how the consumer sees it in a rough economy when the next study of national health spending comes out.

Drew Altman is president and CEO of the Kaiser Family Foundation.

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