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  • Stopping The Spike in Health-Care Costs

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    Peter Orszag
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    During the past six months, spending on health care in the U.S. has accelerated substantially, new data on gross domestic product suggest. Naturally, that's led to some breathless commentary suggesting the era of low health-cost growth we've been enjoying for the past few years is over. In truth, the case for that conclusion is pretty weak. But that doesn't mean there's no cause at all for concern. We are missing a crucial opportunity to make sure that the recent slowdown never ends.

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    Stopping the Spike in Health-Care Costs

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    During the past six months, spending on health care in the U.S. has accelerated substantially, new data on gross domestic product suggest. Naturally, that's led to some breathless commentary suggesting the era of low health-cost growth we've been enjoying for the past few years is over. In truth, the case for that conclusion is pretty weak. But that doesn't mean there's no cause at all for concern. We are missing a crucial opportunity to make sure that the recent slowdown never ends.

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    © All Rights Reserved
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    21 views3 pages

    Stopping The Spike in Health-Care Costs

    Uploaded by

    Peter Orszag
    During the past six months, spending on health care in the U.S. has accelerated substantially, new data on gross domestic product suggest. Naturally, that's led to some breathless commentary suggesting the era of low health-cost growth we've been enjoying for the past few years is over. In truth, the case for that conclusion is pretty weak. But that doesn't mean there's no cause at all for concern. We are missing a crucial opportunity to make sure that the recent slowdown never ends.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 3

    8/26/2015

    Stopping the Spike in Health-Care Costs - Bloomberg View

    H E A LTH C A RE R EF OR M

    StoppingtheSpikeinHealthCare
    Costs

    MAY5,201411:42AMEDT

    ByPeterR.Orszag

    aA

    Duringthepastsixmonths,spendingonhealthcareintheU.S.hasacceleratedsubstantially,newdataongrossdomesticproduct
    suggest.Naturally,that'sledtosomebreathlesscommentarysuggestingtheeraoflowhealthcostgrowthwe'vebeenenjoyingforthe
    pastfewyearsisover.Intruth,thecaseforthatconclusionisprettyweak.Butthatdoesn'tmeanthere'snocauseatallforconcern.
    Wearemissingacrucialopportunitytomakesurethattherecentslowdownneverends.
    Aftergrowinglessthan3percentin2011and2012,personalexpendituresonhealthcarejumpedby6percentonanannualizedbasis
    inthefourthquarterof2013,andthen10percentinthefirstquarterof2014.
    Inassessingthesenumbers,therearefourthingstokeepinmind.First,ashealthinsurancecoverageexpandsundertheAffordable
    CareAct,sometemporaryincreaseincostgrowthistobeexpected.Peoplegetmorehealthcarewhenthey'reinsuredthanwhen
    they'renot.About8millionpeoplehavesignedupforcoveragethroughthepublicexchangescreatedbytheACA,andanother5
    millionhaveenrolledinMedicaid.Areasonableestimateisthatabouthalfofthesepeoplewerepreviouslyuninsured,sotheinsured
    populationhasrisenbyabout6million,or2percentto3percent.Ifallofthatincreaseweretooccurwithinonequarter,andifthe
    http://www.bloombergview.com/articles/2014-05-05/stopping-the-spike-in-health-care-costs

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    8/26/2015

    Stopping the Spike in Health-Care Costs - Bloomberg View

    increaseincostswereproportionaltotheincreaseincoverage,theannualizedgrowthrateforthatquarterwouldbeintherangeof10
    percent.Suchanincrease,though,wouldbeaonetimeeventandwouldtelluslittleabouttheunderlyingutilizationtrend.
    Second,theGDPnumbersarepreliminary.UndertheBureauofEconomicAnalysis'methodology,asubstantialshareofthehealth
    caredataintheadvanceestimateofGDP,whichisallwehaveforthefirstquarterof2014,comesfromwhatthebureaucallsa
    "judgmentaltrend."Inotherwords,aneducatedguess.
    Theseguessesareoftenrevisedsubstantially.Considerasanexamplethethirdquarterof2011:Theadvanceestimatesuggestedan
    increaseinhealthcarespendingofmorethan5percentonanannualizedbasis.Afterrevisions,thefinalnumbershowedadeclineof
    almost1percent.Substantialcautionshouldthusbeassociatedwiththepreliminarynumbersforthefirstquarterof2014,especially
    sincetheBureauofEconomicAnalysisspecificallynotedthattheeffectsofhealthinsuranceexpansionarestillnotfullyaccounted
    for.

    Thethirdthingtokeepinmindisthatotherindicatorssuggesttheslowdowninuseofhealthcareiscontinuing.Medicarespending,
    forinstance,isamoreinsightfulbarometeroftheunderlyingtrendbecauseitisn'tsubstantiallyaffectedbytheeconomyandbecause
    coverageincreasesatafairlysteadyrate.Also,Medicarespendingdataarenotestimatesthey'rebasedonmoneyoutthedoor.And
    inthefirsthalfofthisfiscalyear,Medicarespendinghasrisenbyonly0.6percentoverthepreviousyear.
    Finally,employmentinhealthcarehasn'tgrownrapidly,asitwouldifhealthcarecompaniesexpectedanendtotheeraofslow
    growth.ThejobsreportforAprilreleasedonFridayshowedthatjobgrowthinthesectorremainslow,withparticularweakness
    amonghospitals.Soeitherhealthcareworkers'productivitysomehowrosespectacularlybeginninginthefourthquarterof2013,
    employmentinhealthcareisabouttoboom,orthespikeseenintheGDPdatawon'tcontinueinfuturequarters.Mymoneyisonthe
    thirdoption.
    Wecouldstilllearnausefullessonfromthisrecentscare.Inparticular,asIhaveargued,muchoftherecentdecelerationhasbeen
    causedbyexpectationsamonghealthcareprovidersthatthesystemisshiftingtopaymentsbasedonqualityofcareratherthan
    quantity.Unfortunately,becausepolicymakersarenotmovingquicklyonthisfront,werunarealriskthatproviders'expectations
    http://www.bloombergview.com/articles/2014-05-05/stopping-the-spike-in-health-care-costs

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    8/26/2015

    Stopping the Spike in Health-Care Costs - Bloomberg View

    willnotsoonbefulfilled.Andifthoseexpectationsevercomecrashingdown,wewillhavelosttheopportunitytolockintherecent
    slowdown.
    ThiscolumndoesnotnecessarilyreflecttheopinionofBloombergView'seditorialboardorBloombergLP,itsownersandinvestors.
    (PeterOrszagisvicechairmanofcorporateandinvestmentbankingandchairmanofthefinancialstrategyandsolutionsgroupat
    CitigroupInc.andaformerdirectoroftheOfficeofManagementandBudgetintheObamaadministration.)
    Tocontacttheauthoronthisstory:
    PeterROrszagatporszag3@bloomberg.net
    Tocontacttheeditoronthisstory:
    MaryDuenwaldatmduenwald@bloomberg.net

    http://www.bloombergview.com/articles/2014-05-05/stopping-the-spike-in-health-care-costs

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