Tag: "Health Care Costs"

Why Is There No Car Care Crisis?

employer coverage 300(A version of this Health Alert was published by RealClearPolicy.)

Our health care is in “crisis.” We seem to have achieved the remarkable result of spending too much money while not ensuring access for enough people. Every politician says so, and most citizens agree. Indeed, no presidential candidate can be viewed as credible without proposing a health reform “plan.”

Hillary Clinton has sworn to protect and uphold the Affordable Care Act against all right-wing conspirators; Bernie Sanders has long advocated a government-monopoly, single-payer system; and Republican contenders will continue to roll out plans to “repeal and replace Obamacare” that will immediately come under attack by conservatives and libertarians as “Obamacare-lite.”

Let’s put the crisis in perspective. According to actuaries at the federal government, spending on health care per person in 2014 was $9,176. Yet according to the American Automobile Association (AAA), the average cost of operating and maintaining an average sedan in 2014 was $8,876 — almost exactly the same as health spending. Of course, not everyone owns a car, but most of us do. According to IHS Automotive, an industry research firm, 253 million cars traveled America’s roads last year. According to the Census Bureau, there were 239 million of us aged 18 through 84; that’s slightly more than one car per person in prime driving years.

PPI: Gap in Hospital Inpatient & Outpatient Prices

BLSAugust’s Producer Price Index was flat, month on month, and dropped 0.8 percent, year on year, continuing the trend we saw last month. Producer prices for health goods and services are rising faster than other producer prices (see Table I).

20150911 TI

Hospital Margins Up 9 Percent

This morning’s Quarterly Services Survey (QSS), published by the Census Bureau, reported that:

The estimate of U.S. health care and social assistance revenue for the second quarter of 2015, not adjusted for seasonal variation, or price changes, was $591.3 billion, an increase of 2.2 percent (± 0.8%) from the first quarter of 2015 and up 6.4 percent (± 1.3%) from the second quarter of 2014. The fourth quarter of 2014 to first quarter of 2015 percent change was revised from -0.4 percent (± 1.1%) to -0.5 percent (± 1.1%).

The QSS adds important information to the more widely reported quarterly Gross Domestic Product (GDP) and Employment Situation Summary (ESS) releases that I frequently discuss on the blog.

Health-Related Producer Prices Tame in July

BLSThe Producer Price Index (PPI) for July increased more than expected, but was still benign. Health-related producer prices were tame last month.

Prices for pharmaceutical preparations, which have increased faster than other producer goods in the long term (rising 9.4 percent since July 2014), finally turned around and actually dropped 0.4 percent last month (See Table I). This was a bigger decline than prices for all final demand goods (-0.1 percent) or for all final demand (0.2 percent).

Producer Price Index: Pharma, Biologics Jump

The Producer Price Index (PPI) for June increased more than expected, as the effect of the drop in oil prices abated. As shown in Table I, producer price growth for health goods and services was in line with tame growth in overall PPI, which grew 0.4 percent on the month and dropped 0.7 percent on the year to June.

The exceptions were pharmaceutical preparations, which increased 2.5 percent on the month and are up 10.3 percent on the year; and biologic products (including diagnostics), which increased 3.1 percent month on month and 3.2 percent year on year.

Selling the Same Thing for a Different Price is Normal Market Behavior

Understanding the price of ketchup may go a long way towards explaining why mainstream health reformers give such bad reform advice.

Per capita health spending varies a great deal. It varies by geography, it varies by health status, it varies by demographics, and it varies by individual patient characteristics. Academics and government officials decry this variation. They think that health care spending and utilization should be the same everywhere. Despite ritual hand waving about the importance of clinical differences, their policy recommendations generally attribute variation to inefficiency, overuse, and waste.

Obamacare is Reducing Competition

Novel concepts—whether practice-management companies, home health care or the first for-profit HMO—almost always have come from entrepreneurial firms, often backed by venture capital.

That venture capital has been drying up since ObamaCare was passed. Instead, the biggest wagers in health-care services are being placed by private equity, which is chasing opportunities to roll up parts of the existing infrastructure. For instance, there were 95 hospital mergers in 2014, 98 in 2013, and 95 in 2012. Compare that with 50 mergers in 2005, and 54 in 2006. Cheap debt and ObamaCare’s regulatory framework almost guarantee more consolidation. That will mean less choice for consumers.

(Scott Gottlieb, “How the Affordable Care Act Is Reducing Competition,” Wall Street Journal, July 5, 2015.)

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.

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.