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Health Care Spending Increasing Amidst Uncertainty


Michael Tasselmyer
June 24, 2014

For the first time in five years, the rate of growth in healthcare spending is projected to increase from the previous year. Those are the findings in a new report from major consulting firm PricewaterhouseCoopers (PwC), which forecasts a 6.8 percent growth in health industry spending in 2015. But what does that mean for consumers and taxpayers?

According to the PwC report, several key factors will contribute to more healthcare spending in 2015:

  • Better economic conditions. Although the economic recovery has been slow, the report projects that increased consumer confidence will lead to more Americans seeking medical treatment in the next year.
  • Higher costs for specialty treatments. Specialty drugs and treatment options aren't getting any cheaper in the short term, but the report notes that development of these technologies could result in long run savings.
  • Large-scale mergers and acquisitions. As larger hospitals consolidate and buy other hospitals and smaller practices, costs increase in two ways. There are the logistical and technical costs associated with hospital mergers, including investments in new IT services and data integration; these costs are usually passed on to the patient. Acquisitions of smaller physician practices also means higher costs for patients, since hospitals are able to charge insurance providers higher rates than in-house physicians.

Importantly, the report attributes a significant portion of new healthcare spending to newly-insured Americans who qualified for coverage under the Affordable Care Act (ACA) and will be shopping for coverage options. Next year also happens to be the deadline by which state-run insurance exchanges must become self-sufficient according to the law, but as health spending and enrollment in ACA plans is projected to grow, many states aren't sure how they'll pay those bills.

As Sarah Kliff at Vox.com notes, the federal government has already issued $4.6 billion in taxpayer-funded grants to help states launch their own insurance marketplaces. At least 15 of the 17 states that opted to run their own exchanges have indicated that they will continue to do so in 2015, and in light of considerable uncertainty about how much it'll take to finance them, that could mean either:

  • continued reliance on federal grant money;
  • charging insurers a fee to sell plans through the exchanges (which presumably would be passed on to the consumer);
  • millions of dollars in new appropriations from state governments; or
  • some combination of those three options.

Regardless of which path states choose to take, significant spending will be required to keep up with increasing healthcare costs. As the PwC report notes:

"A stronger economy and millions of newly insured Americans mean an uptick in spending growth for healthcare organizations. That may be a welcome respite from recent years of budgetary pressure. But the fact that health spending continues to outpace GDP underscores the need for a renewed focus on productivity, efficiency, and, ultimately, delivering better value for purchasers."

 

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