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Health Care Costs Growing at Slower Rate (Washn)

Washington — Health care spending grew slowly in 2011 for the third consecutive year, an encouraging trend that sparked debate among analysts over whether modest cost increases would continue.

Spending rose 3.9 percent to $2.7 trillion, according to data released yesterday by the federal Centers for Medicare and Medicaid Services. Costs have grown at this rate since 2009, the lowest since the federal government began keeping records in 1960. Health-care spending held steady at 17.9 percent of the American economy.

“This marks the third year of stable growth at historically low rates,” said Micah Hartman, a CMS statistician.

For decades, national healthcare spending — total spending by the government and the private sector — has grown faster than the rest of the economy, and the federal government has had to devote an ever-growing chunk of its budget to health-insurance programs.

Slower growth would free federal dollars for other programs ranging from defense to Social Security.

The three-year slowdown in cost growth easily exceeds the goal set by the Obama administration for Medicare, the federal program for the elderly, to grow just 1 percentage point faster than the economy.

“The federal government says that GDP gross domestic product plus one is the goal, and we’re definitely in that ballpark,” said Martin Gaynor, a health economist at Carnegie Mellon University. “It’s hard to know what part of that is real change and what part is due to the recession.”

Health policy experts are divided on how long the spending slowdown will last. Harvard University’s David Cutler argued that three systemic changes, ones that will extend for years, are likely responsible for the slower growth rate.

Cutler, who advised President Obama on the 2010 Affordable Care Act, said that the law’s reduced reimbursement rates will permanently slow hospital spending. Chief Medicare Actuary Richard Foster estimated that these reimbursement changes will slow growth of overall health spending by about 1 percentage point each year.

“When I go around the country, I’m seeing folks making huge changes to try and bring down costs,” Cutler said.

Yesterday’s report in the journal Health Affairs showed that the growth of hospital costs decelerated from 4.9 percent in 2010 to 4.3 percent in 2011.

Federal actuaries did not attribute this to the health-care law, which they said has had “minimal” impact on spending since its passage.

Cutler also said the slower cost growth reflects the development of fewer breakthrough technologies as well as an increase in consumer-driven health-care plans, which tend to charge lower premiums but also offer less robust benefit coverage.

“It’s kind of the same drum beating for three years now: You just don’t see cost increases of any significant value,” he said. “There’s a blip up here and there. But if you wanted to argue that we’re in a new era of slower cost growth, I think you certainly could.”

Not all economists agree. Some argue that the recession is still depressing health spending.

“I’ve become more convinced than I previously was that the recession is still having an effect,” says Charles Roehrig, director of the Center for Sustainable Health Spending at the Altarum Institute, a health-policy think tank.

Roehrig’s group also tracks health-care spending. Its analysis, which covers a longer time frame than the federal government’s, suggests that health-care spending growth will remain relatively flat through 2012.

At the same time, Roehrig is skeptical that the lower spending says anything about long-term trends. His recent research on recessions and health spending has found that economic downturns tend to depress health spending for about five years, which would put 2011 within the range of the last recession.

The recession also shifted millions of Americans out of the private insurance market and into state Medicaid programs.

The number of Americans with employer-sponsored coverage dropped by 8 million between 2005 and 2011; over the same period, Medicaid enrollment grew by more than 12 million.

As the economy recovers, most health-care analysts expect that some Medicaid enrollees will return to private coverage.

And since private coverage tends to pay doctors more than Medicaid, that change would be expected to increase costs.

“Even with the same level of utilization this population would have higher spending because private spending is different,” says David Newman, executive director of the Health Care Cost Institute.

It will take a few years to know which side is right. Foster, the Medicare actuary, said that he thinks both narratives might pan out.

Health care costs will likely go up, he said, but perhaps not as quickly as they have in previous years.

“I think costs will accelerate from where we are,” he said. “I don’t think we’ll go back to as dramatic of a level as we’ve seen in a past. There is a growing awareness that says a hospital can’t just raise its charges because its costs went up. They have to worry about their cost reduction.”