The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
Last week, the border tension in the Ukraine and fear of ISIS-sponsored terror attacks dominated news. For some, the welcome return of college football was the story. In the background, two important government reports were issued:
1) The Department of Commerce reported consumer spending showing increased pressure on household pocketbooks(1). Highlights for the second quarter, 2014:
- Real personal consumption expenditures increased 2.5%, while real disposable income grew by 1.0%
- Household spending declined .1% in July
- Personal income (income from wages, investment and government aid) rose .2% - lowest monthly increase this year
- GDP contracted to annual rate of 2.1%
2) The Congressional Budget Office’ updated budget forecast(2). Highlights:
- The deficit for FY2014 will be $506B, an increase from the CBO’s April forecast of $492B (FY2013 actual: $680B)
- The overall economy (GDP) will grow by 1.5% in 2014, a downward estimate from the CBO’s April forecast of 2.6%
- Annual net outlays for all the government's major healthcare programs will increase 85% in 10 years
- Spending on the federal government's major health care programs, net of offsetting receipts, will increase from 4.9 % of GDP in 2014 to 5.9% of GDP in 2024
- In the current fiscal year, 2014 (which ends Sept. 30), net spending for Medicare will increase 2%, but spending for Medicaid will rise 15%, primarily as states expand Medicaid eligibility under the Affordable Care Act (ACA)
Taken together, these paint a good-news, bad-news scenario for healthcare.
The good news is that consumers are saving more, spending less, and seem to be adjusting to a “new normal” in which income isn’t likely to keep up with the costs of the goods and services we buy. The bad news is that household budgets will be stretched thinner, and spending for healthcare will compete with other essentials—education, transportation, housing, food, etc.
For those with private health insurance, it means higher premiums, higher co-payments, and for many, a high deductible insurance plan that requires $1000-$5000 out of pocket before the plan kicks in. Not surprisingly, “elective” health—preventive screenings, routine visits, even some surgical procedures—might be delayed until cash flow is better.
For those covered by Medicare and Medicaid, it means higher co-pays and slightly higher premiums, but the trick is finding physicians who’ll accept their business. After all, the fact that Medicare costs are less than earlier estimates means payments to doctors and hospitals have been cut. The good news for federal budgeters is not necessarily good news for providers who see these patients. Those newly covered in Medicaid programs, or seniors, including many of these who purchase Part C Medicare Advantage plans are also subject to cuts.
And for those without coverage, it means churning through the public system of clinics and emergency rooms will continue, with many more joining their ranks as premiums soar and access to physicians and hospitals shrinks.
These reports illustrate the co-dependence between the U.S. economy and the healthcare industry. It’s an industry that employs almost 15 million and is 17.6% of our GDP. But, it’s also an industry that is eating away at household budgets, and in some cases, making it hard to get to the end of the month.
In many households, angst about conflicts on the world stage is accompanied by fear about healthcare costs. The Department of Commerce and Congressional Budget Office reports should be understood through the lens of everyday Americans. And healthcare is top of mind.
(1)U.S. Department of Commerce Report Friday, August 29, 2014; Eric Morath, “Consumer spending declines in July,” Wall Street Journal, August 30, 2014; “Spending falters, but consumer confidence reaches a 7 year high,” Reuters, August 29, 2014; Rebecca Robbins, “Airfare is up, but Labor Day travelers are flying anyway,” Washington Post, August 29, 2014
(2)Congressional Budget Office, “An Update to the Budget and Economic Outlook: 2014 to 2024,” August 27, 2014
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
© 2014 Navigant Consulting, Inc.