Blog Post

CMS: Health spending will surge next year

September 18, 2013

    Dan Diamond, Managing Editor

    Why has health care spending grown so slowly?

    It's one of the biggest mysteries in health care. Is it the sluggish economy? New technologies and efficiencies?

    The Obama administration thinks it has the answer.

    "We are on the right track to controlling health care costs, thanks in part to the Affordable Care Act," according to a statement today from CMS Administrator Marilyn Tavenner.

    Others aren't so sure.

    "The ACA had basically nothing to do with the bending of the cost curve in the last few years," Princeton economist Uwe Reinhardt said on a Health Affairs podcast.*

    But for all the unresolved questions about cost growth and the health law, new data just released by CMS make it clear: The ACA will drive up health spending next year.

    Maybe not by a lot—but by a noticeable amount.

    New CMS data suggests spending uptick next year

    Since 2010, annual health care spending has grown at less than 4% year-over-year. That’s a historically low rate.

    But national health spending growth is expected to accelerate next year by 6.1%, as new Affordable Care Act provisions come online, CMS actuaries concluded in their new report released today. A key driver is the ACA's Medicaid expansion, which officially launches in January and will help spur a significant jump in federal spending. 

    As a result, national health spending growth is expected to outpace GDP growth once again, after several years where the health spending curve briefly paralleled GDP.

    For more details, Jordan Rau of Kaiser Health News ably summarizes Wednesday's report. (Jordan also took the time to listen to the Health Affairs podcast, so credit where it's due: I stole the Uwe quote from him.)

    But back to the question atop this post: Why has health care spending grown so slowly? Based on the new CMS data, was it the economy after all?

    That does seem like the simple, Occam’s razor answer. While health care has long been thought of as recession-proof, the Great Recession was historically disruptive to all industries, and federal officials don’t track health spending growth back to the Great Depression. (So we can't see how a similarly damaging event affected the health sector.)

    Or was it something structural—a substantive change in how health care is being paid for and delivered? Some supporters of the ACA have touted the law’s delivery system reforms as a significant factor, even before the Medicaid expansion took effect.

    The CMS officials who spoke on Wednesday were wary of making firm conclusions. Based on the longstanding connection between economic trends and health spending growth, “we’re not convinced that [the] relationship has been broken over the past few years," according to Gigi Cuckler, the study's lead author.

    “We’re taking a cautious approach over whether these changes are structural or not,” added Stephen Heffler, of the National Health Statistics Group at the Office of the Actuary. “Until we see evidence that this relationship has been broken, [it’s difficult] to conclude that something structural has occurred.”

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