Medical Costs ARE Really Rising More Slowly, But How About for You?

This trend of reduced cost increases should at least partially continue even as the economy improves. But it’s a different story for your personal budget.

One of the most important pieces of good news for our national economy, and for the federal budget, is that overall health care spending has been grown more slowly during the last few years. Following up on our last blog, from 2009 through 2011 total U.S. health spending grew the least that it has in the last five decades—at an annual rate of increase of just 3.9% per year. Similar low rates of increase have continued in 2012 and into 2013.

While disagreement continues about how much this trend is going to continue with an improving economy, evidence is building that at least some of downward pressure on medical costs will persist.

The Long-Term Benefits

Both individuals and the federal budget would significantly benefit if the health care “cost curve” can be kept bending less steeply upwards into the future.

Individuals would benefit by being able to use more of their income for other expenses. The practical effect would be to increase everyone’s income. More accurately, keeping the health care costs from rising as much would avoid decreasing everyone’s income as much. Rising health care costs—resulting in higher health insurance premiums and in employees paying a larger share of them—have eaten up more and more of employees’ pay. This has been a significant contributor to a decline in real incomes over the last 15 years.

Rising health costs are the biggest current long-term threat to the federal budget.

A continuation of recent cost trends would be very consequential indeed. If Medicare cost increases slow as they have recently, the savings through 2023 will be $363 billion over even the new [Congressional Budget Office] forecast.

“The Forecast Slowdown in Medicare Spending: Is More Coming?,” Report@JAMA (Journal of the American Medical Association), February 21, 2013.

Why Medical Cost Increases Have Not Gone Down for You

According to Drew Altman, the President and CEO of the Henry J. Kaiser Family Foundation, “the slowdown in health costs is completely unreal to average people. Experts measure aggregate spending. But people’s [health care] costs have gone up 140 percent over the past 10 years, while wages only went up 40 percent.”

Every year the Kaiser Family Foundation and the Health Research & Educational Trust conducts an Employer Health Benefits Survey. One of the reports from the most recent annual survey focused on just one of the increased employee costs, medical insurance deductibles. This report, called “The Prevalence and Cost of Deductibles in Employer Sponsored Insurance,” came to the following conclusions:

• Many more employees have medical insurance plans with a general annual deductible: “In 2006, just over half (52%) of covered workers had a deductible for single coverage, compared with almost three-quarters (72%) in 2012.”
• The amounts of these general deductible has also steadily increased: “the average general annual deductible is $1,097 for covered workers enrolled in a single coverage plan requiring a deductible; an increase of 88% since 2006… .”
• An increasing percentage of covered employees have high deductibles: “In 2012, about a third (34%) of covered workers were enrolled in a plan with a deductible of a $1,000 or more compared to 10% in 2006, and 14% were enrolled in a plan with a deductible of $2,000 or more compared to 3% in 2006.”

The report concludes:

In addition to contributing more towards premiums, covered workers are increasingly faced with higher cost sharing.  A larger proportion of workers are required to meet a deductible prior to utilizing services and these deductibles are increasing in size.  It has become commonplace for covered workers to be enrolled in a plan with a deductible of a $1,000 or more.  While many working families have sufficient savings and coverage in case of a medical emergency, the growth in workers’ contributions and cost sharing may increasingly become a financial strain on some households.