Bad news rising

Health care spending, premiums, out-of-pocket costs and the uninsured rate will be heading skyward as we head into an election year.

This fall will bring a barrage of bad news from key health care economic indicators.

The Census Bureau reported today that last year’s uninsured rate stood at 8 percent, no different than in 2023. That is down more than five percentage points from where it stood when the Affordable Care Act (aka Obamacare) went into effect in 2014, a major victory for centrist Democrats who pushed incremental reform as the most politically feasible path to universal coverage.

Things won’t look so rosy a year from now when the bureau issues its next report.

The Republicans who run Congress refused to extend the enhanced premium subsidies for individual policies sold on the Obamacare exchanges during this fall’s sign-up season. As millions of people who purchase those plans will soon find out, out-of-pocket premiums for people earning up to 400% of the federal poverty will soar next year. Those earning more will also see the 8.5%-of-income cap on out-of-pocket expenses disappear.

“If these enhanced subsidies are not renewed by Congress and expire at the end of 2025, ACA enrollee premium payments are expected to increase by over 75% on average, with people in some states seeing their payments more than double,” analysts at the Kaiser Family Foundation said. The Congressional Budget Office estimates 3.5 million people will drop coverage because they can no longer afford their upfront out-of-pocket costs.

Medicaid work requirements are also starting to kick in. While Republicans on Capitol Hill smartly set the start date for January 1, 2027 (a few months beyond the mid-term elections), they gave states the option of implementing them earlier. Numerous states where Republicans control both the governor’s mansion and the legislature are already taking advantage of the opportunity to kick people off the rolls.

Most poor people on Medicaid will not lose coverage because they aren’t working — 92% of Medicaid enrollees work either full or part-time. They will get kicked off the rolls because they fail to file the paperwork needed to meet new twice-a-year recertification requirements. The CBO estimates about 5.3 million will lose Medicaid coverage during work requirement implementation. The liberal Center for Budget and Policy Priorities think the losses will be twice as high because of the new bureaucratic hurdles.

Democrats are debating whether to demand restitution of the enhanced premium subsidies during this month’s negotiations over passing a continuing resolution to keep the government running past October 1^st. Republicans will require some Democratic votes to avoid a filibuster.

While I won’t go into the inside-the-Beltway ins and outs of that debate, suffice it to say that the conventional wisdom, especially among senior leadership, is that the party seen as provoking a shutdown loses politically. While influential pundits like Ezra Klein of the New York Times say Trump’s trampling of the rule of law makes it time to take a stand, my best guess is that the Chuck Schumer-led Democrats in the Senate will fold and no help on enhanced premium subsidies will be forthcoming.

Source: Census Bureau

Costs are soaring

Here’s a little-noted phenomenon from the past decade. The growth in health care spending slowed to about the same rate as overall economic growth. The proof? When the ACA passed, health care spending as a share of gross domestic product (GDP) stood at around 17.4%. As of the end of 2023, it had grown to “only” 17.6%, according to the Centers for Medicare and Medicaid Services actuaries. (I put scare quote around “only” because that is still more than four percentage points higher than Switzerland, the next highest country in the OECD.)

However, CMS recently projected this year’s stepped up spending will increase health care’s share of GDP to 18%. Preliminary estimates for next year show an even larger leap. The actuaries project a 7.1% increase in total spending in 2026, which if inflation is 3% (it will probably be slightly lower) and economic growth is 3% (it, too, will probably be lower), then the increase in health care’s share of the overall economy will grow by at least 1.1 percentage points, driving the total to over 19% of GDP.

This year’s jump in spending is already showing up in health care premiums for the nation’s employers, who provide coverage for more than half of all Americans. The Wall Street Journal reported Wednesday that employers “are facing the biggest health-insurance cost increases in at least 15 years.”

The Aon consulting firm estimates employer costs will surge about 9.5% in 2026. An employer survey by WTW, another benefits consulting firm, projects a 9.2% rise. (These percentages are not inflation adjusted so the real rise in spending will be somewhere between 6% and 7%, or more than twice overall economic growth.)

“It’s an unsustainable number for a lot of employers,” said Shawn Gremminger, chief executive of the National Alliance of Healthcare Purchaser Coalitions, which represents employers. Employers are “upset, shocked, freaked-out and resigned,” he told the Journal reporter.

Lest anyone think these increased benefit costs will be absorbed by employers alone, think again. Employers generally keep their share of health benefit costs at around 75% of the total. That means the employee share — the amounted deducted each paycheck in co-premiums plus out-of-pocket expenses in the form of co-pays and deductibles, will go up a similar amount.

This will undoubtedly incentivize more families to opt into high-deductible plans, which have lower upfront premiums. That’s a winning strategy if no one in your family gets sick. But it doesn’t bode well for those families struck by an expensive illness, which means they will be paying much higher out-of-pocket costs. Expect a jump in number of people resorting medical bankruptcy when they can’t afford those extra bills.

Employment boom over

Hiring in health care, like the rest of the economy, has slowed dramatically. The sector added 32,000 jobs last month, according to last week’s Bureau of Labor Statistic report. The entire economy added just 22,000 jobs, meaning without health care, that closely watched indicator of U.S. economic well-being would have turned negative.

The latest report from Kaufman Hall, a consulting group that tracks hospital finances, shows margins have been steadily shrinking this year as expenses outpace revenues. The report noted in particular non-labor expenses, which no doubt reflects supplier price increases in response to the Trump tariffs. “Given an uncertain future outlook, many hospitals are taking steps to build long term resiliency,” the report noted.

Bad debt and charity care — hospital finance officer lingo for people who can’t pay their bills — rose 10% in the first five months of this year, about the same as overall hospital revenue. Utilitization rates rose substantially in the first seven months of this year with patient-days up 4% compared to the same period a year ago.

Labor expenses, on the other hand, fell slightly. As discussed in last week’s podcast, the health care sector is heavily dependent on immigrant labor. With supply (new immigrants) drying up, one would expect wages to rise to attract native-born workers to the nursing aide, food service, maintenace, billing department and other lower-wage jobs that make up half the health care workforce. So far, that isn’t happening.

Should the Trump-Stephen Miller mass deportation campaign pick up steam, that may change. But another possible scenario is that hospitals and physician offices, their margins shrinking, will simply eliminate jobs they can’t fill, leading to a deterioration in the quality of care and customer service, which was never very good to begin with.

None of this bodes well for the political party in power. Then again, that presumes we have free and fair elections next year — not a safe bet in the current environment.