By: Tim Coan, Founder, Chief Executive Officer, ALN Medical Management

December 10, 2015 9:32 am EST

This week we are digging into the 2014 healthcare spending report in a series of two articles. Click here for part one.

When you can apply the same concept to both sports smack talking and the month end financial reporting, you’ve got real versatility.

Good results need little commentary; bad news requires analysis, charts, footnotes, plans and promises.

‘Revenue was ahead of plan, profitability was ahead of plan, and cash is strong. Any questions? No. Adjourned.’

Good news does not need spin. Explaining away poor results takes a little longer.

Healthcare spending in 2014 was up 5.3% compared to 2013. Was that good or bad?

Well, let’s just say no one simply pointed to the scoreboard and walked away. Cue the analysts and explainers.

During the last five years, we averaged a relatively low 3.7% annual growth rate in healthcare spending. The Administration has taken credit for this slower rate, but really, they should give George W. Bush the trophy since he caused the recession and the recession is the primary reason that spending slowed.

Though the ACA was passed in 2010, most of the significant provisions of the Affordable Care Act went into effect in 2014.   And it 2014, costs went up 40% more than in recent years.

Analysis, we need more analysis.

Defenders of 5.3% as being a good number note that costs went up because we got more people insurance coverage. That is a good thing, right? I thought that getting people insurance would get them out of the expensive ER and that would bring costs down?

One of the best ways to look at this is to compare how the growth of healthcare spending per capita to income per capita. That neutralizes the effects of both inflation and population growth and gives us a pretty straightforward look. What does that metric tell us?

From 1970-2006, healthcare costs outstripped personal income by 2.4% a year. That is huge, and over almost four decades, that adds up to our current crisis. Recently, healthcare costs have grown at about the same rate as personal income, which is very little on both fronts. Thanks, Mr. Great Recession, thanks.

How was 2014? According to the Internal Monetary Fund, US incomes rose 3.3%. Healthcare per capita was 4.5%. A little quick math says that is one is a lot bigger than the other.

Charts! We need charts! And footnotes. Footnotes would be good.

OK, we’ll drag out the footnotes and explain what was behind the not-so-rosy 5.3% spending increase.

Kids, final exams are approaching, so let’s review. What have we learned so far about healthcare spending in 2014? Johnny, what would you say?

It is big and growing faster than we would like.

Good. That will be in the easy true/false part of the test. There will also be two essay questions. First, you have to explain why it is growing at this rate.

Kids hate the essay portion, don’t they? The good news here is that the answer is pretty straightforward because there are two primary drivers behind the $150 billion increase in 2014 spending.

The first is ‘coverage expansion.’ A lot more people got insurance, which is the primary goal of the Affordable Care Act, right?

Private employers covered about 2.2 million more people in 2014. Some of that is due to the employer mandate, but the improving labor rate accounts for most of it. Job creation is a good thing on many fronts.

But the private sector is a slacker.

7.7 million people were added to the Medicaid rolls, driving up this spending by a whopping 11%. This accounted for a full third of the increase. And remember, only half of the states expanded Medicaid eligibility. Imagine the cost increases we could drive if the other half would just get on board!

Side note: As we hinted at earlier in this article, this is something of an inconvenient truth because the whole premise behind this thing was that people without insurance was a source of the problem. Since we do provide universal healthcare (just not universal health insurance), these people were defaulting to the ER for their primary care. With insurance, they should access care more appropriately and cost should fall. But 10 million more people get insurance and costs go up even faster? Explain that for extra credit.

The other major culprit was retail prescriptions, particularly the increasingly unpopular specialty drugs. They accounted for over $35 billion of the new spending. Hepatitis C drugs alone were up $11 billion.

The rest of the spending increase was spread pretty equally across all other sectors.

The second essay question will require complex thinking. ‘What does the 2014 increase suggest for the future trend?’

Ha, it’s a trick question. The correct answer is, ‘We don’t have a friggin’ clue.’

So that completes your six minute course on 2014 healthcare spending. Everyone passed and gets a gold star.

The views and opinions expressed herein are those of the author(s). Core Compass’s Terms Of Use applies.

About the author

Tim Coan is one of the founders of ALN Medical Management, a company that provides outsourced revenue cycle management and information technology services to physicians. He has served as Chief Executive Officer since inception in 2000.  Tim can be contacted through his website form or by phone at 866-611-5132.

healthcare sectorhealthcare spending
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