Urban Institute Projects a Reduction in National Health Spending Between 2014 and 2019

An Urban Institute analysis using the latest data from the CMS forecasts a decrease in national healthcare spending through 2019. The brief, “The Widespread Slowdown in Health Spending Growth: Implications for Future Spending Projections and the Cost of the Affordable Care Act,” is an update of the Urban Institute’s 2015 analysis, and suggests that the nation continues to be on track to spend much less on healthcare over the next several years than was projected by CMS in late 2010. The report, by senior research associate Stacey McMorrow, PhD, and Institute fellow John Holahan, PhD, is part of the Urban Institute’s continuing project to track and monitor the implementation of the Affordable Care Act (ACA).

The report finds that projected national health spending for the period between 2014 and 2019 fell by about $2.6 trillion since the 2010 (ACA) baseline, reflecting large declines in Medicare, Medicaid, private insurance, and other healthcare spending projections. The authors found a decline in projected Medicare spending from 2014 to 2019 of $518 billion compared with the earlier finding of $384 billion. This additional decline of $134 billion in Medicare spending is directly reflected in the additional decline in the total national healthcare expenditures for 2014 to 2019. On the whole, cumulative 2014 to 2019 national health spending in the 2015 forecast is $49 billion higher than in the 2014 forecast. The 2015 forecasts for Medicare, private health insurance, out-of-pocket spending, and other health spending are also slightly higher for 2014 to 2019 than in the 2014 forecast, but Medicaid spending for 2014 to 2019 is now projected to be $123 billion lower than in the 2014 forecast.

“Despite the modest increase in projected national health spending since the 2014 forecast, however, the 2015 forecast still reflects a decline of $2.6 trillion from 2014 to 2019 compared with the 2010 ACA baseline forecast,” the study states. Declines in projected 2014 to 2019 spending on Medicare ($455 billion), Medicaid ($1050 billion), private health insurance ($664 billion), and other health spending ($456 billion) since the 2010 ACA baseline forecast continue to be quite large, the authors say.

CMS has repeatedly reduced its annual forecasts of expenditures for national healthcare from 2014 to 2019. While analysts acknowledge the growth of high-deductible private health plans and cost-containment efforts in state Medicaid programs as contributing to the healthcare spending slowdown, they have mainly attributed the spending slowdown to the effects of the Great Recession and sluggish recovery—not to the implementation of the ACA.

However, McMorrow and Holahan believe that the ACA could have contributed to the lower 2015 projections in several ways:

1. The ACA payment adjustments that began in 2011 seemed to have a greater effect on utilization than expected. Unexpected reductions occurred in Medicare hospital days, outpatient visits, skilled nursing facility days, and advanced imaging.
2. Lower payment rates in Medicare may have affected payment rates by other payers.
3. Medicare policies, such as financial penalties for hospital readmissions, may have spilled over to other payers.
4. Premiums in marketplaces are below expectations because of strong competition, intense negotiations over provider payment rates, and narrow networks.

CMS has not attributed reforms such as medical homes and accountable care organizations to cost savings, but the report suggest that these reforms may have raised uncertainty among providers over revenue flow, causing providers to make changes to adapt to the new environment. If the economy was the primary driver of slower growth, then we would expect a return to faster growth with an improved economy. However, recent research suggests that by the last quarter of 2015 spending growth had slowed to below 5% after a spike in 2014.

If spending projections continue to fall, the authors conclude, it will become harder not to attribute at least some of the sustained cost containment to the ACA.