If you read this blog regularly you know that a couple of weeks ago I shared how projections for health care spending from 5 years ago were overstated by about 20%. Projecting health care spending is difficult for a few reasons, here’s just a few.
1. Part of what determines how quickly health care spending grows is the health of the overall economy. When the economy is doing well, people spend more on health care. Unless you bury all your money in the backyard and live off of the grid you realize that our economy is still recovering from what’s been labeled the “Great Recession”. How far it recovers and how quickly, will impact health care spending.
2. Technology is expensive and new technology increases costs in health care. The rate at which new technology emerges that helps to diagnose and treat medical conditions will impact health care cost.
3. Health care reform is supposed to have an impact on cost. These reforms aim to move the American health care system from one that pays for volume, rewarding doctors for providing lots of services, towards one that pays for value — rewarding doctors for helping patients get healthier. Medicare and Medicaid are heading down the value road and some private insurers are following suit. It’s hard to know just how much impact the shift from volume to value will have, partly because the baby boomers are reaching the age where they will require more services so savings in value may be offset by more people needing services.
4. Over the last few decades, there has been a shift toward patients paying for more of their own care. The idea is that when people have higher cost-sharing — higher deductibles and copays — they will make more careful choices about when and how often to seek medical care, which should reduce some unnecessary doctor’s visits. A shift toward higher patient cost-sharing has helped hold down spending growth over the last few years but can it continue?
5. One of the results of the Affordable Care Act and a move by private insurance has created what are called “narrow networks”. The word “narrow” is key. A narrow network means patients have fewer choices on where to receive care. Some view narrow networks as a form of rationing because patients may be less likely to travel and for providers who don’t have the population base to participate in narrow networks survival will be difficult which will in turn create even greater access to care problems. Fewer providers and difficult access could lower cost because efficiency can be gained but the reverse could occur when fewer providers have greater power to negotiate rates which could drive up cost.