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Reinhardt on US Health Spending Trends

By January 23, 2012Commentary

Uwe Reinhardt is a well-known health economist with a decades long career in the field and a deep understanding of what moves health spending in the United States.  In the wake of the CMS Office of the Actuary release of detailed numbers for 2010 national health expenditures, some are saying that we appear to have turned the corner on controlling spending.  In a New York Times post, Reinhardt urges caution.    (NY Times Post)   As he points out, at other times in the past, for example, just after the Medicare DRG system was introduced, people have said that health care inflation was conquered, only to see it roar back as strong or stronger than ever.  And as we have noted repeatedly, what counts is not what the absolute level of growth in health spending is in a year, but whether over a longer period of time it grows at a real per capita rate which is as low as or lower than per capita gross domestic product growth.  That has not happened for decades.

A fascinating series of charts accompanying the post shows how much of our growth has been on the public program side and that actual out-of-pocket consumer spending has declined dramatically from almost 50% in 1965, before Medicare and Medicaid were enacted, until now when it is less than 15%.  It is undoubtedly this decoupling of consumer from spending which is the main impetus to the more rapid  growth in expenditures.  Since 1965, with only brief exceptions, national health expenditures per capita have grown faster than per capita GDP, in an almost cyclical fashion, which may reflect economic cycles to some extent but appear more likely in recent decades to demonstrate the effect of some cost control innovation which has an impact on utilization and perhaps unit prices, but then is overridden by other forces, unfortunately often regulatory actions, such as those that muted the effect of managed care techniques.  There is absolutely no reason to think there is anything different about this cycle and that we won’t soon see the gap between GDP and health spending growing again.

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