Health costs are growing really slowly. Americans haven’t noticed.

August 20, 2013

Ask any health economist and they'll no doubt tell you that health care cost growth is slowing, growing at a low, unprecedented rate.

They can point to the National Health Expenditures report, which shows health care costs now growing at the same rate as the rest of the economy. Or, they can pull up new data out Tuesday from the Kaiser Family Foundation, showing that premiums grew 4 percent in 2013. That's way lower than growth in the late 1990s and early 2000s.

Ask any American about what direction health costs are moving, and you'll likely get a completely different story. Preliminary results for a forthcoming Kaiser Family Foundation poll show that most Americans think that health care costs are actually growing faster than usual right now. Fewer than 10 percent say the growth is slowing down.

"We have a very moderate increase this year, but premiums go up each year," Kaiser Family Foundation president Drew Altman says. "People see what they pay for their premium going up and perhaps more forms of cost-sharing. We've been seeing a quiet revolution from more comprehensive coverage to less."

Altman said that preliminary results from his group's survey show that 54 percent of Americans think health care costs are growing faster than average. "A tiny number said they were growing slower," he says. "I think that's because, if we look at this as a long term trend, health care costs have increased in excess of wages and inflation."

The 4 percent increase in 2013, for example, still more than doubles growth in inflation (1.1 percent) and wage growth (1.8 percent) over the same time period.

It's also important to look beyond premiums, to the other health care costs that Americans may incur in paying for health coverage. While monthly premiums are growing slower, the Kaiser Family Foundation data  shows a steady rise in deductibles, the amount that an insurance costumer must pay out-of-pocket before their benefits kick in.

This is especially true among businesses with fewer than 200 employees, where 58 percent of workers are enrolled in plans with a deductible over $1,000, up from 49 percent in 2012.  At companies of all sizes, the number of workers in high deductible plans has more than tripled since 2006.

Moderate premium growth, then, may not seem as significant in the context of higher deductibles.

These trends, Altman and others say, are likely to continue under Obamacare, where millions of consumers will price shop for health coverage and compare premiums for different plans. The cheapest premium plans will likely have significant deductibles, as a way of holding overall costs down.

Already the new marketplaces have bids from plans with relatively high deductibles, especially in the bronze and silver categories, which offer less robust coverage and are the options that consumers are most likely to purchase.

And this actually aligns with a more conservative view of how health insurance ought to work, with coverage that, as health wonks describe it, puts "more skin in the game," making the subscriber responsible for a greater part of his or her own health care costs.

"The vision of health insurance they've advocated is the vision of health insurance which is generally coming to predominate the marketplaces," Altman says.

That helps explain why, even if the health care cost slowdown continues (and that's a big if), it might not necessarily be felt by consumers. If we're shifting to an insurance model where the consumer pays a bigger chunk of the bill, health care costs could keep growing slowly–without insurance subscribers ever noticing.

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