Is the Health Care Cost Curve Bending?

What if the growth of health care spending isn't as big a problem as we thought? And what if the health care "cost curve" that got so much attention during the debate over the 2010 health care overhaul is already being bent — not by ObamaCare or other government-driven reforms, but by consumer preference and private sector innovation?

Over the weekend, Annie Lowrey reported in The New York Times on an unexpected recent trend: Health spending is still growing, but it's not growing quite as fast. The recession is probably part of the story. But it's not all of it.

In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.

The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor's visits or surgical procedures, or skipped nonurgent care when money was tight.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.
So what's going on? Most likely there are multiple factors at work. But part of the explanation may be that private sector innovations are helping to restrain the growth of health spending.

Lowrey suggests a number of possible reasons for the decline:  

Many experts — and the Medicare and Medicaid center itself — point to the explosion of high-deductible plans, in which consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer

onsulting.That means thousands of consumers with an incentive to think twice about heading to the doctor. One study by the RAND Corporation found that health spending among people who shifted into a high-deductible plan dropped 14 percent — though the study also found that enrollees cut back on some care that tended to save money in the long run, like vaccinations.

A second factor is a dearth of expensive, novel drugs coming onto the market, experts said, as well as growing pressure to use generics. "There just aren't as many blockbusters," said Professor Cutler, the Harvard economist.

Finally, and most important, health economists point to a shift toward accountable care, in which providers are paid for the quality of care, not the quantity.
There are about 164 "accountable organizations" in the United States, according to research by Leavitt Partners. Hundreds of other insurers and health systems have enacted some of the features of accountable care, like assigning specially trained nurse practitioners to patients with multiple chronic conditions to make sure they take their medications and to prevent hospitalizations.

Data on the slowdown in the growth of health spending has been making news for several months now: J.D. Kleinke, a health policy expert at the American Enterprise Institute, noted the slowdown back in February.

But as Kleinke pointed out, some government data indicates that the slowdown in health spending growth actually started years before the recession: "The growth rate of national health expenditures, according to data compiled by the Centers for Medicare and Medicaid Services, has been moderating since 2002," he wrote in an op-ed for The Wall Street Journal. This is total health care spending, public and private, not just what the state and federal governments spend through tax-financed health programs like Medicare and Medicaid. And that means that private sector innovations can play a role.

In his op-ed, Kleinke pointed to many of the same factors as Lowrey, albeit with a different emphasis: a wave of powerful and cost-effective medicines, increased use of inexpensive generic drugs, and consumer-driven insurance policies that give patients an incentive to make prudent health spending decisions.

When I spoke to Kleinke on the phone in February, he accused the Obama administration of trying to hide the decline in spending growth in order to justify passage of the health care overhaul. The Obama administration wants people to believe that "the recession has tamed health care costs," he said. "That's not true. This is a trend that has been going on since 2002 and 2003 because of profound changes in the market."  It's "politically necessary" around the White House to claim that health care "needs massive reinvention" driven by the federal government, he told me. The decline in spending growth, he said, "takes away a lot of the political rationale for the average voter" to support the health care law.

Let's put the politics on hold for a moment. If there's something other than the recession that's restraining spending growth, it's probably the expansion of so-called Consumer Driven Health Plans (CDHPs) that pair high deductible insurance with health spending accounts. I've argued in the past that these sorts of plans represent the best hope for restraining health spending without harming individual health.

A 2009 metastudy of high-quality research on consumer-driven plans by the American Academy of Actuaries (AAA) reported that "properly designed [consumer-driven health] plans can produce significant (even substantial) savings without adversely affecting member health status." With traditional insurance plans, costs grow each year—the only question is by how much. But the AAA study showed drops of between 5 and 15 percent during the first year after switching—putting total savings (when compared with traditional plans) between 12 and 20 percent. They also showed increased use of preventive care.

The good news is that utilization of these plans, which have only been around for about a decade, has been expanding rapidly: In January of 2011, there were 11.4 million people enrolled in CDHPs, up from 10 million the year before, according to Kaiser Health News. 

But President Obama's health care overhaul doesn't rely on CDHPs for its savings. If anything, it makes them more expensive.

As Lowrey suggests, accountable care organizations (ACOs) may be making a difference too, finding ways to coordinate providers in ways that save money on care. But note that the ACOs that have had the most success were in place before the health law — and that a number of the highly coordinated, model ACO systems declined to participate in the ACO program set up by the Obama administration under the health care overhaul, rejecting it as overly restrictive.

Also, the Federal Trade Commission is busy suing a number of health providers for engaging in exactly the sort of coordination that the health law is designed to encourage. 

I'm not entirely convinced that the decline in spending growth is a long term trend that will hold up. The combined pull of Medicare, Medicaid, and the recent health care law is likely to exert tremendous pressure on the health system as a whole and make it difficult to sustain any gains.

Still, it's possible that at least for right now the cost curve is bending in the right direction. But no thanks to ObamaCare.