U.S. News Health Care Index Shows Massive Increase in Consumer Costs

During the last year, a compelling narrative has emerged about health care spending: Though it continues to rise each year, its rate of growth is slowing dramatically and unexpectedly. Projections show that this trend will continue during the coming decade, partially because the impact of the Great Recession has lingered.

It is unclear at this time what role President Barack Obama's health care law, the Affordable Care Act, played in the slowdown. Looking at various aspects of health spending will, however, help determine what factors can alleviate health care costs, which still grow at a faster rate than the rest of the economy and threaten the financial sustainability of government-sponsored health plans.

To analyze health care's changing role on the U.S. economy, U.S. News has created a new annual Health Care Index, which examines trends in specific health areas from 2000 to 2013.

"As health care enters an unprecedented change in the way people are covered, how care is paid for and how it's delivered, we want to better understand how it affects things like jobs and people's economic well-being," says Brian Kelly, editor and chief content editor at U.S. News & World Report.

The U.S. News Health Care Index uses data from the U.S. Bureau of Labor Statistics, the Centers for Medicare and Medicaid Services, the United States Centers for Disease Control and Prevention, the Department of Health and Human Services, the National Center for Educational Statistics and the World Health Organization. "It's giving us the broadest measure of health care's impact on U.S. society," says Bob Morse, chief data strategist at U.S. News.

Changes to the health care system under the Affordable Care Act are not yet measured. Significant elements of the law, including mandated health insurance, Medicaid expansion and the requirement for employers to provide health insurance had not gone into effect when the data were collected. However, the health care industry anticipated some of the law's key measures and may have already implemented similar practices ahead of it. The 2013 budget sequester, which enacted automatic cuts to government spending, also is not taken into account.

For the index, U.S. News analyzed key economic factors, including expenditures, medical costs, insurance coverage, health employment, health care education and international comparisons. To be included, a specific health-related measure had to be generally published annually beginning in 2000 and had to hold enough statistical significance to provide a conclusive trend of some important aspect of the health care industry.

Like other major indices -- such as the S&P 500 and the Dow Jones Industrial Average, for example, or the Consumer Price Index -- the U.S. News Health Care Index has a base year from which changes in the underlying factors are measured. The Health Care Index's base year is 2000 and was set to equal 100.0; it will be calculated annually by U.S. News and measures the yearly changes in the activity of its components in relation to the year 2000.

For the 2015 Index, overall results show a steady upward trend, although a slowdown in the rate of growth attributable to the Great Recession is noted from 2009 to 2013 -- in which expenditures and employment, the highest-weighted components, played a significant role.

But what stand out most are trends in the rates of spending for private and public health insurance. There was a decrease in the number of Americans covered by private plans since 2000, and an overall increase in those covered by public health insurance, including Medicaid, the government's insurance plan for poor or disabled Americans, and Medicare, which covers seniors.

During the Great Recession, people lost their jobs as well as the health care benefits that went with them. Some enrolled in Medicaid or went without coverage. In the years following the end of the recession, the rates of people covered by private plans remained steady.

But another dramatic shift was occurring. The Baby Boomer population -- born between 1946 and 1964 -- also had continued to age, so beginning in 2011 millions of seniors dropped off private plans and enrolled in Medicare.

Though the volume of beneficiaries increased during this time, the Index shows the rate of Medicare spending slowed because of these new, younger enrollees, who tended to be healthier and use fewer medical services. They are expected to spend more as they age, but for now a flood of 77 million seniors has lowered the average age of participants in the program.

Medicare spending represents 20 percent of national personal health spending, so the news struck economists as positive because the government's payment structure often sets the stage for the private health care industry.

At the same time that the government is becoming a more dominant force in health care, the index shows that consumers with private insurance have taken on a greater share of costs for their care. Health insurance premiums have been one of the fastest-growing health care economic measures since 2000. Employers are paying more, and requiring that their employees contribute more as well.

"As was the case in 2000, spending on private insurance is higher than spending on Medicare and Medicaid, even though their rates of spending have grown at a faster pace," Kelly says.

But deductibles -- the out-of-pocket costs consumers must pay before their health insurance benefits kick in -- are the components that have seen the most growth from 2002 to 2013. In 2002 -- the earliest year for which data about deductibles were available -- less than half of private-sector health insurance plans had a deductible. By 2013, more than 80 percent had a deductible, and the amount paid by consumers was skyrocketing.

"Premiums were steadily rising," says Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. "Employers tried to manage this expanding price tag by shifting costs to their employees in the form of higher deductibles and increased co-pays. This is one of the factors -- in addition to the Great Recession -- that contributes to the slowing of health care spending growth in the latter part of the period."

The most recent 10-year projections from government budget analysts show that health care costs will continue to increase, but that they will increase at a slower rate than they have in the past, and at a lower rate than projections from previous years.

"Barring a serious overhaul in the way health care is reimbursed, we anticipate the trends to continue -- the government will become even more involved in health care, and Americans will pay a greater share of their health care costs," Kelly says.

During the period in which the index was measured, some Americans may have chosen to go without coverage, or may not have been able to afford it. Others may not have been able to obtain it because companies were still permitted to deny coverage to people with pre-existing conditions.

But under the health care law, more commonly known as Obamacare, Americans must purchase health insurance or pay a penalty. They have more options now: They can buy private, tax-subsidized insurance; they may be eligible for Medicaid based on their incomes; and insurance companies cannot turn applicants away. Current government estimates show that the number of uninsured has decreased by a third.

Holtz-Eakin says the Affordable Care Act likely will have mixed impacts on health care spending overall. "The Essential Health Benefits mandate means covering more services, and pushes premiums up," he says. "The regulations in the exchanges will raise premiums even more for the young and healthy, but reduce them for the older and sicker. And the subsidies reduce the bottom line for lower income families."

"The wildcard is what happens in the long run to health care spending growth," he continues "I am skeptical that it will change things much because it is dominated by small scale efforts like pilots and demos. And the early returns on Accountable Care Organizations and the Medicare Shared Savings Program are a bit underwhelming."

Morse says continuing to analyze the trends in future indices will reveal what impact the Affordable Care Act has on health care spending. "We will learn whether it is bending the cost curve," he says. "We will learn where it is having an impact and where it is not."

The U.S. News Health Care Index is interactive; click the "explore data" buttons associated with each sub-index in order to see how the data relate to the analysis.

Kimberly Leonard is a health care reporter for the News division at U.S. News. Previously she worked in Health Rankings as a multimedia producer and reporter. You can follow her on Twitter, connect with her on LinkedIn, circle her on Google+ or email her at kleonard@usnews.com