US health spending has slowed dramatically

Doctor visits down, urgent care up: PWC
Doctor visits down, urgent care up: PWC

Health spending in the U.S. appears to be dramatically lower than analysts had projected immediately after passage of the Affordable Care Act, a new analysis suggests.

The new projections indicate that the U.S. will spend approximately $2.6 trillion less on health care in the five-year period ending in 2019 than estimated, despite a brief spike in health spending in 2014, the authors say.

"Obviously the people [who made the initial estimates] were wrong by 2.6 trillion dollars," Gary Claxton, vice-president of the Kaiser Family Foundation, a non-profit health policy institute, said Wednesday.

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"The interesting thing is that, over the last couple of years, we managed to greatly increase the number of people with access to care and increase their benefits and still maintain low rates of growth," Claxton says. "The question is how long these low growth rates will go on."

Health spending slowed in Medicare, Medicaid and private health insurance. Analysts at the Centers for Medicare and Medicaid have predicted that spending will be $455 billion lower than expected. Medicaid spending, they now say, will be $1.05 billion lower than predicted. Even spending for private health insurance was $664 billion lower than the government's forecast.

Percentage of People Eligible for an Obamacare Marketplace Plan Who Are Signed Up for 2016 HealthGrove

Different factors account for slowed spending in the three insurance sectors, experts say. Medicare spending was a target of the Budget Act of 2011, which in April 2013 forced Medicare to trim 2 percent from its payments for all services. There were also cuts in payments to private Medicare Advantage plans and in annual payments to hospitals and other institutions.

In addition, use of Medicare services hasn't grown as quickly as some predicted, despite a growing proportion of elderly in the U.S. population. "You wouldn't think that the elderly would be very affected by the economy, but the utilization patterns during the recession and recovery showed a clear reduction in use. It's hard to explain why. Maybe people worry about their savings, even if their income doesn't change."

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Medicaid growth slowed because of a sluggish economy and lower-than-expected prescription drug spending. Private health insurance spending slowed more than expected because of the halting economic recovery, a shift to high deductible plans and greater cost sharing.

While cost sharing may help push national health costs down, it pushes personal health expenditures up, Claxton says. "There's a little concern about the higher cost sharing in some policies that's probably a contributor to lower growth, but it does stress people who use health services."

National Medicare Expenditures Over Time HealthGrove

Physician payment reforms may have had a small impact, not least by making it easier for economists to predict physician costs, he says.

Reforms in delivery system itself – such as the creation of accountable care organizations and the shift from volume to value – may not have produced big savings so far, but they may be key in the future, says Katherine Hempstead, a senior advisor to the Robert Wood Johnson Foundation, which funded the analysis. "They're hard to measure because they're so new," she says.

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