Last night in a cynical act of political theatre, the Senate passed a bill to eliminate major provisions of the Affordable Care Act including expanded Medicaid coverage and tax credits for people who don’t have affordable employer coverage. Of course, the Senators who voted for the measure know perfectly well it will never become law. They are trying to have it both ways – playing to the die-hards who still favor repeal of the ACA (a minority of the electorate, but still a majority of Republican voters) while escaping the consequences of their support for a bill that, were it actually to take effect, would be both an operational and political disaster. It would cause millions to lose their coverage, uncompensated care costs to spike and insurance markets to crash. And still, “replace” is nowhere in sight. Whether the maneuver was a success is up to the voters next year. Here is our statement on the vote.

Unpacking the New Numbers on Health Spending Growth.

The news headline writers for new data reports on health care spending in the US did a decidedly uneven job. For example: “Health Care Spending on Rise Again,” Politico,12/3/15; “Growth in Healthcare Spending Picks Up,” Wall Street Journal; even the New York Times gets low marks with “Health Spending in US Topped $3 Trillion Last Year.” What’s missing from these headlines, and sometimes in the stories, is context. Or sometimes the wrong context is offered. See the AP headline: “2014 US Health Spending Grew at Fastest Rate of Obama Years.” Is that really the right frame of reference? (Hint: no)

Let’s pick on the New York Times for a change because they are less given to sensationalism than many other sources. Spending topped $3 trillion. Uh oh. Big scary number that makes for a good headline, but basically meaningless in isolation. Too hard to provide context in a headline you say? Not at all. Consider some outlets that did better, like the LA Times: “US Healthcare Spending Hits $3 Trillion as Obamacare and Rising Drug Costs Kick In.” There’s at least some useful information there, though it could be better. The generalized attribution of the increase to “Obamacare” is not that informative. How about: “Rise in US Health Spending Driven by Higher Rx Costs and Increase in Insurance Coverage?” 

The stories themselves also contained some misleading statements. For example, in Politico we read: “Regardless of the exact cause, the data released Wednesday makes it clear that the trend of slower growth is not here to stay.” Actually, the data showed no such thing. Even in Robert Pear’s New York Times story it is not until somewhere around paragraph 15 that we read HHS’s statement that faster growth in spending was due to the surge in health insurance coverage and as a result was likely temporary. And in a story, otherwise chock full of data, the data to support this view from HHS is not presented.

When we look at the actual numbers we see the biggest change from the previous year was an increase in the use and intensity of health services, accounting for almost half of the total spending growth. This spike in utilization is driven mainly by the coverage expansion.

This is hugely important but was underemphasized in the press. Remember, on average the uninsured spend about half of what the insured spend on health care. So if you insure millions of people, giving them better access to medical care, it is hardly surprising the health care spending will rise. This is a feature, not a bug.

Also, remember that prior to the passage of the ACA, increases in health spending were generally accompanied by decreasing levels of coverage, which tend to hold down utilization. If you net out the effect of expanding insurance coverage, you see that medical prices increased at a rate of 1.8 percent – only slightly higher than the 1.3 percent from the previous year, and still very low by historical standards. So, what the data really shows (contra Politico, and notwithstanding the concerning rise in drug costs – more about that later) is basically good news: a major expansion in coverage coupled with another year of low health care inflation. But you’d never get that perspective from reading the news. So how’s this for yet another alternative headline: “Expanding Coverage and Low Growth in Health Care Prices Cause for Celebration.”

Rising Drug Prices: A Fly in the Ointment

The main dark spot in an otherwise encouraging picture on health spending was the steep spike in drug spending. There was a big surge in prescription drug spending across Medicare, Medicaid and private insurance, with the lion’s share of the increase attributable to increased spending on specialty drugs, particularly those used to treat Hepatitis C. With high drug prices fueling so much of the spending growth, the conclusion of a Congressional investigation that Gilead Sciences, the maker of two of the biggest selling new drugs, put profit maximization ahead of access and affordability is concerning but not surprising. (“I’m shocked, shocked to find profit maximization happening here.”) Maximizing profits is what corporations do. If we want to make sure that access and affordability factor into the price of prescription drugs, we are going to have to substantially change the rules of the game.

A Final Nugget (I couldn’t resist)

I could go on and on excavating the data and dissecting the news coverage, but here’s one last tidbit that you will never get from the press coverage: Medicare Advantage covers about 30 percent of Medicare enrollees, but accounts for over half of the administrative cost of the Medicare program. Maybe we should be raising those medical loss ratios some more…