Category: Health Care Costs

Shrinking Health Construction Spending: Consolidation to Blame?

This morning’s release of construction spending from the U.S. Census Bureau indicates spending on health facilities actually shrank a little in May, a significant downturn from the previous release (see Table I, below the fold). Total construction spending amounted to about $1 trillion, of which $39 billion was health care. Health construction spending shrank 0.6 percent from April and grew only 3.1 percent year on year. Total construction spending, less health, grew 0.9 percent on the month, and 8.4 percent year on year.

We look at this because other economic data indicate that health spending is consuming more of our prosperity. Low, even shrinking, spending on construction of health facilities may represent the consolidation of hospitals that many fear will lead to increasing prices.

GDP: Health Spending 43 Percent of Increase In Personal Consumption

Where is your money going? Increasingly, the answer is health care. This morning’s third estimate of first quarter Gross Domestic Product (GDP) was not as awful as previously estimated – a real decline of 0.2 percent, not 0.7 percent.

The overall drop of $7 billion was driven by a decline in exports and nonresidential structures. Personal consumption expenditures increased by $58.3 billion. However, $48.1 billion of that was services, of which $24.2 billion was health care. Almost half the quarterly increase in personal consumption was health care.

As I have noted consistently for over a year, a distressingly large share of our national prosperity is being consumed by the government-medical complex.

Health Spending Up, Up, and Away

The Quarterly Services Survey (QSS) is Census Bureau report that we should be watching to see how health costs are climbing. This blog last looked at it in September 2014. Fortunately, Dr. Drew Altman, CEO of the Kaiser Family Foundation has been keeping a close eye on it. His conclusion:

New Evidence Health Spending Growing Faster Again

Analysis of the survey data shows that health spending was 7.3% higher in the first quarter of 2015 than in the first quarter of last year. Hospital spending increased 9.2%. Greater use of health services as well as more people covered by the ACA appear to be responsible for most of the increase. People are beginning to use more physician and outpatient services again as the economy improves. The number of days people spent in hospitals also rose. (Drew Altman, “New Evidence Health Spending Growing Faster Again,” Wall Street Journal, June 11, 2015)

The growth in number of days spent in hospital is very disconcerting. It had been on a downward trend for years. (See page 300 of this CDC report.)

Producer Prices: Health Goods & Services Lag

Last Friday’s Producer Price Index showed a jump from April to May of 0.5 percent (seasonally adjusted). When I last looked at the PPI, it looked like prices of health goods and services were outpacing other producer prices.

The latest data show them lagging (see Table 1). Although, looking at year-on-year data, pharmaceutical products, hospitals, and nursing homes have had relatively high price increases. Price inflation for health insurance has been moderate, according to the PPI.

Still No Transparency in Medical Pricing

Entrepreneur David Williams has good insight into the limits of Health Savings Accounts as tools of consumer empowerment, discussing:

…… a consumer who did his darndest to find a good deal on a CT scan, finally settling on the $475.53 price at Coolidge Corner Imaging.

But the bill he got later was for $1,273.02 — more than twice as much — from a hospital he had no idea was connected to the imaging center.

“I was shocked,” said White, a doctor of physical therapy who thought he knew his way around the medical system. “If I get tripped up, the average consumer doesn’t have the slightest chance of effectively managing their health expenses.”

The patient wasted tons of time and effort trying to get the problem cleared up. He cared since he had a high deductible plan.

In my view, high deductible plans are a pretty crude instrument to encourage cost consciousness and price transparency. (David Williams, MedCityNews, June 2, 2015)

I agree. NCPA has long championed HSAs. However, stories like the one discussed here are too common. HSAs need to become more than a way to shift costs from premium to out of pocket. Health insurers need to get out of the business of fixing prices.

If we had not been distracted by Obamacare, we might be there by now. Hopefully, we’ll be back on track before too long. I have proposed a “common law” solution to the problem of price transparency. Read more about it here.

Milliman: Health Costs Rising Again

The latest annual edition of the Milliman Medical Index (which estimates “the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization”) suggests that last year’s moderate rate of growth was idiosyncratically low.

Last year’s 5.4% growth rate was the lowest in the history of the Index. This year, the growth rate has climbed to 6.3 percent – exactly the same as 2013.

Milliman also concludes that the “Cadillac tax” is fast approaching, especially for workers at smaller firms.

Local Governments Must Disclose Retiree Health Liabilities Properly

U.S. state and local governments will have to report billions of dollars in health-care liabilities on their balance sheets under an accounting change aimed at improving disclosure of retiree benefits.

As a result of rules approved Tuesday by the Governmental Accounting Standards Board, municipalities and states will have to record the cost of health insurance and other benefits besides pensions in financial statements, the board said in a statement. Such costs are currently disclosed only in footnotes. (Darrell Preston, BloombergBusiness, June 2, 2015)

This great news is the result of years of grinding out the issue. State and local authorities have had to carry pension liabilities on their balance sheets for years now. Allowing them to keep retiree health liabilities offside biased negotiations in favor of health benefits because they could be more easily disguised from municipal bond investors and taxpayers.

This is surely a major cause of inflated health benefits for current government workers as well (which we’ve discussed here and here.) The new rule will dampen these benefits, which should help keep health costs down.

(Read the entire rule here.)

Are Insurers Prevailing Over Drug Makers?

Variety of Medicine in Pill BottlesLess than a year ago, it looked like health insurers were sending up trial balloons to see if they could get the federal government to regulate the research-based pharmaceutical industry as a utility. This was a reaction to high prices for new drugs like Sovaldi®. Today, the issue is being dialed back:

Express Scripts, the largest pharmacy benefits manager in the U.S. initially refused to put Sovaldi® on its formulary. Now, it looks like both sides might have come to a businesslike accommodation:

That taught Amgen and other drugmakers a lesson. Avoiding hostility with insurers and PBMs is now a paramount industry goal. “Every company is saying, ‘We don’t want to replicate what happened with Sovaldi. So let’s sit down and talk,’ ” says Steve Miller, chief medical officer of Express Scripts. “It’s very clear that it has changed the dynamic in the marketplace.” (Arlene Weintraub, “Big Pharma and Insurers Play Nice,” BloombergBusiness, May 28, 2015)

Insurers’ newfound power is extending beyond drugs for Hepatitis C and cancer:

Health Spending Unscathed In Shrinking Economy

This morning’s terrible revision to first quarter GDP – from an initial estimate of 0.2 percent real growth to a real loss of 0.7 percent – confirms that health spending stands over our weak economy like a colossus.

In the initial estimate, personal consumption spending on health services increased by $23 billion (chained 2009 dollars). Today’s second estimate reports $24.2 billion (Table 3, line 17). So, we can be pretty confident that the folks at the Bureau of Economic Analysis who do this good work have mastered how to measure spending on health services.

This emphasizes how much of our prosperity is being devoured by a health system that is still driving everyone crazy, post-Obamacare. The real drop in GDP was a loss of $30.6 billion.

Breast Cancer Screening Update

Women joggingYou may recall controversy circa 2009 and 2010, when the Affordable Care Act was passed, about whether women in their 40s would get “free” mammograms every year. In 2009, the US Preventive Services Task Force issued guidelines recommending annual mammograms starting at 50 years, not 40 (as previously recommended).

Needless to say, this upset many people. The American Cancer Society maintained its recommendation that preventive screening start at 40, as did the Mayo Clinic. Politicians took note, and made an exception in Obamacare for mammograms, such that the 2009 USPSTF revision was ignored when it came to Obamacare’s “free” preventive care.

The USPSTF looks ready to re-issue its guideline, which means “free” mammograms for women in their 40s will not be mandated by Obamacare. Avalere Health has published a study estimating that this could “eliminate guaranteed coverage” for 17 million women.