Among cost categories, hospital outpatient continues to show the fastest growth, at 8.6%, although slightly down from prior years.  Hospital inpatient grew 7.6%, physician costs a relatively slow 5% and drugs 7.3%.  Almost all the inpatient cost increase is due to unit price growth.  One thing to note is that the actuarial value of the average plan is above what the reform law defines as a gold plan, so employers still have room to increase the employee cost share.  Some of the reform law provisions have already become effective, raising costs for employers, but they generally have found ways to shift those costs to employees in other ways and Milliman anticipates that this will continue to be the case if the law stays in effect.

Among the other factors cited by the authors, such as lower overall drug spending, due in part to greater generic use and a smaller pipeline of new drugs, better manufacturer rebates and better control of drug utilization, most are likely directly impacted by Part D plan activities, although the authors give them limited or no credit for these effects.  Plans negotiated hard with manufacturers for good pricing.  The plans’ utilization management activities drove greater generic utilization and avoided inappropriate prescribing.  And the number of competing plans has been much greater than CBO and critics projected and the presence of so many plans has kept premiums, which are all Medicare pays, low.  In fact, the program could be made even more competitive.  Part D is an excellent example of how competition can still work in health care and a strong argument for privatizing the entire Medicare program, which at a minimum would save billions annually on administrative costs.

The authors projected potential savings if this form of insurance covered 50% of employer-sponsored health insurance.  If the CDHP was accompanied by a 50/50 mix of health reimbursement accounts and health savings accounts, the savings would be about $57 billion dollars.  If it were 100% health savings accounts, the spending reduction would be $73 billion.  About two-thirds of the savings are in fewer episodes of care and one-third in lower spending per episode.  While the increased cost-share has raised concerns about people skipping necessary care for cost reasons, the fact that preventative care must be covered without copays and that value-based designs are being incorporated into CDHP should lessen this concern.  It is likely that healthier people select CDHP coverage, meaning that regular coverage premiums will likely rise more.  It also will be important to help CDHP enrollees have tools and education to raise their ability to become good health care shoppers.  But in general this trend supports the healing of the health care market by returning responsibility to individuals.