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Pulling It Together: The Falloff in Utilization: “There’s Something Happening, Here, What It Is Ain’t Exactly Clear” « » The Henry J. Kaiser Family Foundation

Pulling It Together: The Falloff in Utilization: “There’s Something Happening, Here, What It Is Ain’t Exactly Clear”

For as long as I have been in the field, we have seen cycles in health care costs. Per capita health spending would rise, then moderate, then rise gain. My colleague Larry Levitt and I documented this in The Sad History of Health Care Costs and my friend Dr. Jim Mongan called it “the peaks and valleys” of health care costs. We have never been sure whether the “valleys” were the result of government actions, such as wage and price controls, the threat of health reform in earlier eras, recessions, or other factors we just could not identify, but they were clearly observable in the data. Even as health spending per capita rose and fell, overall health spending has continued to rise faster than GDP and gobble up a growing share of the economy. When we saw a valley in per capita health spending or in health insurance premiums, we always knew there would be another peak, because as a nation we had done little or nothing to deal with the underlying drivers behind rising health care costs. Has something changed?

When the historic recession started to bite in 2008, people began to put off elective health services: they went to the doctor less, had fewer procedures, and purchased fewer drugs. Even hospital days fell. But utilization continued downward even after the recession technically ended in June of 2009 and the economy started to slowly recover. Current data on medical use in the private sector are sparse, but from what we can tell from the data we have and from anecdotal reports from health insurers, utilization has not picked back up, at least not yet. Seniors too appear to be cutting back on prescription drugs, according to a recent study from IMS Health.

These trends are consistent with recent patterns in health premiums we have observed in our annual employer survey. We saw historically very modest increases of between 6% and 3% from 2006 and 2010, the longest period of moderation on record. Premiums jumped 9% in 2011, but we believe that was because insurers expected a return to higher utilization levels in the economic recovery, which did not in fact occur.

Are we witnessing another temporary valley in health care costs, albeit a very long one due to the historic nature of the recession and its lingering effects on consumer spending? Or, are we seeing a real change in health care utilization patterns? If it is the latter, what is driving it? Are doctors all of a sudden ordering fewer tests, drugs, procedures and hospitalizations for their patients? That’s hard to believe, at least in the absence of fundamental payment reform. Could there be fewer new medical technologies coming online? That would not seem to be the case; last year was a big year for new drugs.

If we are witnessing something other than the lingering effects of a weak recovery, then a likely explanation is the growth we have seen in cost-sharing and high-deductible plans. The share of workers in a plan with a deductible of $1,000 or more grew from 18% in 2008 to 31% in 2011, and from 35% to 50% in smaller firms. The Affordable Care Act (ACA) will not arrest, and could accelerate, these trends. The individual deductible for a bronze plan in the new insurance exchanges could easily exceed $4,000, and the family deductible is about double that amount. In other words, to reference a different debate currently in the news, what is actually “mandated” for about 30 million people under the ACA is basically catastrophic coverage. As insurance begins to look more like catastrophic coverage and less like comprehensive coverage, there is an impact on utilization. Of course, in some cases people may be cutting back on unnecessary care and in some cases they may skimp on needed care, which could lead to higher costs down the road. Much more research is needed on this issue.

Increases in cost sharing are not a new phenomenon. Economists will be quick to point out that out-of-pocket spending has not gone up as a share of overall health spending. But it has risen dramatically relative to wages which have been flat for over a decade. And it is plausible, if not likely, that the combination of a deep and lingering recession and higher deductibles, in some cases spurred by tax changes that make high-deductible plans attractive in combination with savings accounts, has triggered a tipping point of sorts that is causing people to use less health care.

If we are seeing a shift downward in utilization patterns it would constitute a one-time reduction in the level of health spending but not necessarily affect the longer-term rate of growth, which most agree is driven by new medical technologies. People get sick and sometimes very sick, and there are, in the end, only so many doctor visits, procedures, elective hospital stays and drugs that people can delay or forgo. But if increased cost sharing is a major factor driving lower use, we may not have seen the full effect yet, as the trend toward high-deductible plans shows no signs of arresting soon. It will take a few more years of monitoring utilization patterns to know if we are seeing a recession-effect or a real change in patterns of use, what may be driving them, and how deep this one-time adjustment in patterns of use may go.

We have a new phenomenon to watch with important implications for people and costs. In the words of the old Buffalo Springfield song:

“There’s something happening here,
What it is ain’t exactly clear.”