Health Costs Resume Their Rise

America’s health cost crisis is no longer in remission.

Last week, the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) announced that healthcare spending had risen 9.9 percent in the first quarter of 2014 — the largest quarterly increase in more than 30 years.

The BEA’s estimate comes on the heels of a report from the IMS Institute for Healthcare Informatics that attributed the jump in spending to increases in physician office visits, hospitalizations, and prescription-drug usage.

Worse, Obamacare will only exacerbate America’s health cost crisis as it takes full effect this year.

Believe it or not, Americans have had some relief from high healthcare spending over the past few years. From 2009 to 2012, spending grew less than 4 percent a year, the lowest growth rate in 50 years.

The slowdown was largely due to the recession. Americans responded to stagnant wages and an uncertain economy by cutting back on medical expenses.

But with the economy picking up once again, health spending has returned to pre-recession levels. In January, it reached historically high levels as a share of GDP. And in February, health spending growth reached a seven-year high, according to the Altarum Institute.

Spending is going up because people are consuming more care. Doctor’s office visits increased by 2.7 percent in 2013. Specialist visits rose 4.9 percent the same year.

Hospitals tallied 13 million more outpatient visits in 2013 — a 3.2 percent increase over 2012. Inpatient visits rose 10.5 percent. Overall, hospital admissions increased 2.6 percent last year.

Pharmacies have also observed an influx of customers. Patients filled an average of 12 prescriptions in 2013 — 2 percent more than in 2012. Spending on medications grew 3.2 percent in 2013. The increase came after a 1 percent spending decline in 2012 — the first drop since Medicare started measuring in 1957.

Spending will climb even higher over the next few years as more Americans gain insurance through Obamacare, The Centers for Medicare and Medicaid Services (CMS) estimates that 11 million Americans will get coverage this year — driving health spending up 6.1 percent. That’s two percentage points higher than last year’s growth rate.

Over the next decade, CMS projects that annual national health spending will grow 5.8 percent annually — 1 percent faster than the expected growth rate of the economy.

Higher health costs spell higher insurance premiums. Aon Hewitt, a consultancy, estimates that premiums could rise 6 to 7 percent this year. David Arxene, a fellow with the Society of Actuaries, thinks they could jump 8.5 percent next year.

Those premium hikes could take a serious toll on businesses and individuals. The average per-employee health cost rose to $10,471 in 2013. Aon Hewitt posits that costs could exceed $11,000 in 2014.

That sum doesn’t include copays, co-insurance, and deductibles. Average employee out-of-pocket costs are expected to surge more than 10 percent this year, to $2,470.

Then there’s the impact of rising health costs on the government’s bottom line. This year, Obamacare will dole out $17 billion in subsidies to people shopping for coverage in the exchanges. Through 2024, the total subsidy tab is projected to exceed $1 trillion, according to the Congressional Budget Office.

But those numbers could go up. Obamacare caps the amount of money that individuals making between 133 percent and 400 percent of the federal poverty level can pay for health insurance as a percentage of income, in order to guarantee that coverage is “affordable.”

Those with incomes up to 133 percent of the federal poverty line must contribute 2 percent of income, while those making between three and four times poverty must contribute 9.5 percent of income. The federal government takes care of the rest.

If premiums continue their march upward, the amount of money the federal government will have to devote to insurance subsidies will increase, too. The Treasury is already running a half-trillion-dollar annual deficit. So there’s not a lot of extra cash for exchange subsidies floating around.

Lawmakers must stop America’s health costs from spiraling further. The nation can’t afford otherwise.

They should start by scrapping many of Obamacare’s most costly mandates. The law requires that all policies cover medical services that many patients may not need or want, like addiction treatment or maternity care. Those additional mandates drive up the cost of a basic policy.

Obamacare’s community rating rules, which bar insurers from charging older customers more than three times what they charge younger ones, should also come in for revision. Insurers have responded to this three-to-one ratio by charging young people more — so that three times their low premium is still adequate to help offset the higher medical costs of an old person.

A five-to-one community-rating ratio would be more in line with reality — and would allow insurers to ratchet down premiums for the young, who are disproportionately poorer and have lower coverage rates than the middle-aged.

Lawmakers should also expand access to high-deductible, consumer-directed health plans paired with Health Savings Accounts. Such accounts allow consumers to save money tax-free for spending on routine care — and to keep money they don’t use from year to year. The high-deductible policy, meanwhile, protects them in the event of a catastrophe.

RAND researchers estimate that if half of the nation’s employers used such plans, national health costs could fall by $57 billion per year.

High health costs have returned. As millions more Americans secure coverage, those high costs are likely to head higher. Lawmakers must arrest this trend. They can’t do so without dismantling Obamacare — and replacing it with a plan that empowers doctors and patients.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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