Beyond the Data: A Column by Dr. Drew Altman

https://www.kff.org/series/beyond-the-data/?utm_campaign=KFF-Drew-Columns&utm_medium=email&_hsenc=p2ANqtz-_iLhRxeQo-Sgtb1m9Nh-NLG36b5T3MN7XI6WYbSteOif6dc2QV2KWyfUioYeKsZpWEKqNXmI0bucZuYBr0uZ5W-KVMFQ&_hsmi=400843839&utm_content=400843839&utm_source=hs_email In his “Beyond the Data” columns, CEO Drew Altman discusses what the data, polls, and journalism produced by KFF mean for policy and for people, and also occasionally comments on important work others have done that hasn’t received enough attention. Read and share Drew's column on kff.org. ---------------------------------- Our Darwinian Approach to Health Care Costs President Trump is now railing about insurance company premiums.The Ways and Means Committee and Energy and Commerce Health Subcommittee in the House just held hearings putting insurance company executives on the hot seat and examining a broad range of health cost issues. Politically, it’s an effort to shift accountability for affordability worries from Republicans to tried-and-true villains (insurance companies and drug companies), and blunt Democratic attacks to come in the midterms on affordability issues. It also helps to put health care costs back in the spotlight. What it doesn’t really do is put the costs that matter most in focus: spending for hospitals and doctors, which together represent 52% of the health care bill. With the exception of the occasional piece of legislation affecting them, such as site neutral payment for some hospital services, they have mostly been basking on the sidelines while drug companies (retail drugs are 9% of spending), and now insurance companies, take it on the chin. The other thing Congress has been doing aggressively is reducing federal health spending through cuts in Medicaid and the ACA tax credits, shifting cost burdens to states and to consumers. It underscores how reducing health care costs has become a Darwinian game; everyone wants to reduce health care costs and spending—their own, often at the expense of someone else. It’s like a Venn diagram with spending problems that only somewhat overlap and more often conflict. Here is a brief review of the multiple spending problems in play and the tradeoffs in addressing them. National Health Spending When experts talk about health costs, they usually mean national health care spending, measured as health care’s share of GDP or per capita health care spending. By these measures, as you all know, the U.S. looks pretty terrible compared to other wealthy nations, with not much to show for it in terms of better health outcomes (a complicated subject). Health spending as a share of our economy has plateaued, just short of 18%. When you hear the expression “bending the cost curve,” it’s the rate of increase in per capita national health spending that people want to bend downwards. Spending is increasing more rapidly again (7.2% in 2024), and the CMS actuaries now project that health spending will finally hit 20% of GDP by 2033. My Health Care Costs Consumers (also patients and voters) mean something very different when they talk about health costs. What they are concerned about are their own out-of-pocket health care costs, which can wreck havoc on family budgets and prevent people from getting needed care. It’s this issue, and certainly not national health spending, that animates health as an issue for voters. The U.S. subsidizes coverage through Medicare, Medicaid, a $300 billion a year tax break for employers to provide coverage to employees, and yes, ACA tax credits. To put it crudely, the government spends more so people can spend less. And because health care and insurance are so expensive, the subsidies the government provides are not enough for many lower-income and working people given the high costs of care, and a wide cross section of the American people struggle with health care bills and medical debt, especially people who are sick and need a lot of care. Obviously, however, liberals and conservatives disagree on how expansive subsidies should be. These first two affordability problems—the national health care bill and the personal one—are different and in tension. Economists are sometimes dismissive of out-of-pocket costs, noting that out-of-pocket spending as a share of national health spending hasn’t changed much. It’s indicative of a talking-past-one-another problem we have; tell that to the 100 million Americans with medical debt or the 30-plus percent of people with chronic illness who say they can’t pay their medical bills. One solution to reducing the rate of increase in health spending favored by the conservatives is to ask people to spend more on health care, on the theory that more “skin in game” will cause people to use less care, putting the goal of reducing spending for government and the country overall ahead of the needs of people. Liberals by contrast favor more subsidies to help working people afford coverage, prioritizing health security over reducing spending. In both cases, national and personal affordability goals conflict. Federal and State Health Spending (and Counties) The next two spending problems are related and famously in conflict—federal health spending and state health spending. “The Big Beautiful Bill” cut federal health spending by almost a trillion dollars over 10 years, mostly on the backs of low-income people through Medicaid cuts, advancing a longer-term goal of conservatives to cut federal health spending and shrink the federal role in health. That directly shifts burdens to states, who will be hard pressed to replace very much of the lost funding, and to people who may lose coverage, face higher bills, or fewer or no services. States in turn are concerned primarily about their own state general fund spending—not health spending overall in the state. They are constantly trying to maximize federal funding, and when it shrinks and states cut back, counties are often left to pick up the slack when they can, which for most counties isn’t much of the time. The debate about federal health spending and the “One Big Beautiful Bill” was a debate about cutting Medicaid and federal health spending; pointedly, it was never a debate about, and was not fundamentally about, reducing health care costs. Employer Premiums Employers are almost single-mindedly focused on their premium increases, which they often view as a tradeoff with the wages and other benefits they can provide (economists take this as an article of faith, although, in the real world of budget politics of the public and non-profit sector organizations I have run, it’s been far less than clear that there’s a direct tradeoff). In a fragmented health system with large employers spread out over many markets, their tools for influencing premiums are limited, but they work hard at the margin every year to shave costs, as they are doing now, developing coverage policies for GLP-1s. Next year, employers are likely to see higher premium increases with the possibility that the average cost of a family policy will approach $30,000 per year. This is likely to cause employers to increase cost sharing and deductibles at least somewhat again in 2027, after several years of relative quiet on that front—another example of spending/affordability problems and goals in conflict, in this case, the interests of employers and workers. There has been wide consensus for a long time that the big taxpayer subsidy for employer health benefits is regressive and drives up health spending, as you would expect it would, and various attempts to rein it in have been proposed. Each attempt has proven to be a political non-starter. Employers and workers want health coverage, and while the tax subsidy may offend as policy, politicians don’t want to take it away. It has always been noteworthy to me that we don’t have a health cost and affordability strategy as a nation—another casualty of our fragmented health system. CMS does spending projections and is responsible in varying ways for the ACA, Medicare and Medicaid. But there is no agency or official charged with developing an overall health cost strategy for the health system, even if that strategy lacks the enforcement mechanisms other nations may have. The laudatory efforts in several states to establish cost targets are a step in the right direction, although most focus mainly on hospital costs and lack teeth. While it’s captured in different places in different federal surveys, no agency looks over affordability—what people pay out of pocket and how that especially affects sick people—the health cost issue that animates the public and has always been a heartbeat issue for us at KFF. And with the possible exception of CMMI’s limited pilots and demonstrations focusing on Medicare, no agency looks at the underlying costs of care across the health system and what can be done about it. That’s probably the biggest failure of all. Washington, states, employers and people would not have to scramble so much to reduce their own health spending if we did more to reduce underlying health care costs, or at least tried harder. It’s well established that the main reason we spend so much more for health care compared to other nations is the high prices we pay for health services in the U.S. But the reason our spending is rising more sharply again now is about an equal mix of utilization of services and our high prices. A hodge podge of initiatives under the rubric of “value” may be having some impact on health care use collectively, even as individual initiatives have modest effects, and some have tradeoffs that warrant scrutiny, such as narrow networks. And with industry consolidation and weak market forces in health care, and regulation out of fashion politically, little is being done to address high prices. In the absence of any meaningful way to address underlying health care costs, everyone focuses on reducing spending—their own.