Health Care Spending to rise despite more uninsured

by Merrill Goozner


Government prognosticators once again foresee rising health care costs amid falling insurance coverage. Is this an election prediction?

Each mid-year, economists and actuaries at the Centers for Medicare and Medicaid Services offer their predictions for the direction of health care spending over the next decade. This year they projected health care’s share of the overall economy will soar to 19.7% by 2032, up from 17.3% in 2022.

Hmmm. Where have I heard this before?

Last year, CMS’ actuaries predicted total spending as a share of GDP would reach nearly 19.6% by 2031, a year earlier than this year. In 2018, they predicted it would reach 19.7% of GDP by 2026. In 2014, they predicted it would reach 19.3% of GDP by 2023.

Things did not turn out that way. During 2023, health care spending as a share of GDP stood at 17.6%, according to the latest estimate from CMS. While up slightly from the year before, it is well within the range of 17-18% where it has been for more than a decade.

One should never dismiss the possibility that health care spending will resume the rapid growth that marked the first decade of this century when Republicans controlled the White House and Congress and passed an unfunded drug benefit without price controls. But those additional costs have long been embedded in their estimates and fail to explain why other spending moderated significantly since passage of the Affordable Care Act in 2010.

Matthew Fiedler of the Brookings Institution, who served as chief economist for the Council of Economic Advisers during the Obama administration, this week  dismissed the conventional explanations for the historic post-ACA slowdown. Neither the Great Recession (2007-2009); the COVID-19 pandemic; nor the ongoing insurance expansion from the ACA had much impact on spending, he wrote.

But, then, what did? Fiedler threw up his hands without trying to explain the decade-long moderation. “Without a clear understanding of what factors did halt the upward trend in the health share of GDP, it is hard to be confident that those factors will persist and, thus, hard to exclude the possibility that longer-term trends will reassert themselves, as the actuaries predict,” he wrote. “Nevertheless, the health share of GDP has changed little in 13 years—almost twice the length of the 1993-2000 episode [health care cost growth also moderated during the Clinton administration]—and it is reasonable to wonder if this episode might prove a bit more durable.”

Cost control matters

Allow me to play the role of a one-armed economist (thank you Harry Truman) in this discussion and offer my explanation. Since passage of the ACA, public policy has emphasized controlling costs. The Trump administration failed to repeal the law despite repeated efforts. Throughout the last decade, the CMS Innovation Center, created by the ACA, enlisted provider organizations across the country in numerous experiments testing alternative payment mechanisms. CMS shared savings with physician practices that held down costs; gave hospitals bundled payments for surgeries and other distinct care episodes; and rewarded accountable care organizations that lowered total spending by aligning the incentives for all the providers in their networks.

By standard measurement, only a few of those programs saved money for Medicare. But together they set a tone. Cost control mattered as long as it didn’t worsen the quality of care or outcomes. Many improved both even when they didn’t save money. As a result, many private insurers and employers embraced alternative payment and care delivery programs. (That some became abusive through use of high-deductibles or misuse of prior authorization and care denials is another story.)

In an editorial in Modern Healthcare in 2019, I wrote that the CMS economists’ annual 10-year projection “doesn’t take into account the likely policy response to growing public outrage over high drug, hospital and testing prices. They also dismiss the potential savings from improving care coordination, eliminating unnecessary tests and procedures, moving care to less-costly settings, and beefing up social support for the 5% of patients who account for 50% of all spending.”

Unfortunately, there are disturbing signs that hospitals are beginning to break free from those constraints and ignore those objectives. These large institutions may be returning to the days when they put their bottom lines ahead of the societal need to control costs and improve overall population health. In its flash estimate for last year, the economists at CMS reported that “hospital spending growth is expected to have accelerated substantially, from 2.2 percent in 2022 to 10.1 percent in 2023 … in part because of increasing utilization.”

Uninsured rate will rise under current law

Meanwhile, both the CMS actuaries and the economists at the Congressional Budget Office, which this week offered its own projections for health care, are on the same page when it came to insurance coverage. With Medicaid’s automatic renewals ending and the larger subsidies for ACA coverage set to expire in 2025 (both policies enacted during the pandemic), the share of the population without health insurance is slated to resume its ascent.

CBO estimates the uninsured rate will rise from 7.7% this year to 9.0% in 2032. CMS, which uses a slightly different methodology, sees sees the uninsured rate rising to 9.3% in 2032 from 7.3% this year.

That is likely, but only if Congress refuses to pass a law maintaining the expanded exchange subsidies that made Obamacare plans affordable for millions of additional families without employer-based coverage. It is likely if restitution of the annual Medicaid re-enrollment process throws millions more lower income Americans off its rolls. That is . . . it is likely if 11 states, largely in the South, continue to reject expanding Medicaid to cover people earning up to 138% of the federal poverty level. It is especially likely if the ACA is repealed, which will send the uninsured rate soaring into the double digits.

In other words, it is likely if we see Republicans in charge of Congress or the White House starting next January. Even without repealing the ACA, Republican control will allow current law to stand, which will dramatically increase the ranks of the uninsured. Current law is what both CMS and CBO use when projecting the future of insurance coverage.

As National Economy Council deputy director Daniel Hornung said in a speech to the Washington Center for Equitable Growth earlier this week,

“President Biden expanded the premium tax credits, which lifted health insurance coverage to record  levels across demographic groups. The expansion will lapse without congressional action by fall 2025; making it permanent is at the top of President Biden’s agenda.”

When people are uninsured, they don’t stop using health care. Only they use it when their conditions have worsened to the point where they need hospitalization — the most expensive part of the health care system. Their stays are longer and their prospects for full recovery reduced.

Moreover, when the uninsured can’t afford to pay, it gives hospitals and other providers the green light to raise prices on others to make up for their uncompensated care. Such increases aren’t inevitable. They are a choice.