Prediction vs. reality: The amazing slowdown in health costs continues

Dan Diamond, Executive Editor

In the history of U.S. health policy, 2014 stands out as a landmark year.

The launch of the Affordable Care Act's insurance exchanges. Medicaid expansion in more than two-dozen states. And more than 8 million Americans getting health coverage as a result.

And not surprisingly, 2014 ended up being a landmark year for health spending too, CMS actuaries reported on Tuesday.

For the first time ever, national health spending topped $3 trillion last year, the actuaries said.

And health spending also grew by about 5.5%—the highest growth rate in seven years.

Both numbers are notable. Both got lots of attention in the media.

But neither is a surprise.

Here's what is.

All those estimates?

They're a fraction of the spending bump that the same group of actuaries originally predicted for 2014.

How health care spending gets calculated. And recalculated. And recalculated.

If you're curious, you can get lost in the annual health spending data—tables upon tables of sector-specific estimates and projections. It's the single best source for national health care cost projections.

Which is a bit concerning—because it's usually very wrong.

Take the new numbers about 2014.

Ten years ago, CMS actuaries predicted that the U.S. health care bill would be nearly $3.6 trillion by 2014 … about 15% more than the nation actually spent last year.

And after the ACA passed, the actuaries predicted that health spending would jump by 8.3% in 2014. That estimate ended up being about 1.5 times too high.

This is par for the course. Long-term projections have a way of not coming true, given the effect of policy changes and economic cycles. The actuaries own up to this constant iteration, and Tom Getzen's post at the Altarum Institute goes deep on how accurate (or not) the estimates tend to be.

But in my mind, those constantly changing estimates provide a very important framework to look at this week's spending numbers. Especially because most news coverage this week took a dire tone.

"Healthcare spending likely to rise sharply in coming years," read one typical headline.

Why it matters

Here's a different, equally valid way to write about the latest spending projections: Compared to what we once expected, the growth in health spending is on a totally new, lower path.

For instance, the growth in hospital spending has stayed flat, partly because hospital prices only grew 1.4% last year—the lowest rate since 1998.

And in the pre-Affordable Care Act world, when health care spending was sometimes growing at 10% per year, last year's 5.5% growth rate in health spending—and the forecast of 6.0% annual growth over the next decade—would be seen as a triumph.

So what should we make of the new spending data?

I asked someone who would know: Harvard professor David Cutler.

Cutler's long believed that our national health care bill doesn't get enough attention. "Slowing the growth rate of health care spending is the most pressing issue on the heath reform agenda," Cutler once wrote—in 1996.

And even though the United States is coming off six straight years of record slow growth (slowth!), Cutler thinks we haven't done enough yet to slow down costs. "It's still the most important issue," Cutler told me on Tuesday.

But compared to previous decades, "we understand a lot more about the value of spending now," he added, as well as how to influence it, such as through tactics to rationalize the use of medical care.

And there's a clear reason why the focus on how much we're spending—or not—on health care needs to stay a priority, Cutler says.

"It's less about slowing spending for slowing spending's sake," he pointed out, "and more about improving the value of health care."

How to think about health spending

On this week's episode of "The Weekly Briefing," Dan Diamond, Rivka Friedman, and Rob Lazerow debate why the health care spending slowdown might be over, and what it means for hospitals, doctors, and others who work in health care.

You can listen to the show here or by clicking on the player below.

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