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Kaiser Analysis of Spending Slowdown

By April 25, 2013Commentary

For a variety of reasons, health care spending growth has slowed in recent years, to around 4% for each year of 2009 to 2011, which it should be noted is still much higher than economic growth.  A snapshot analysis from Kaiser, with assistance from the Altarum Institute, examines whether growth is likely to continue to be moderate or will accelerate.   (KFF Analysis)   If the deep recession and slow recovery account for most of the decline in growth, we could anticipate that if the economy grows faster, health care spending may reaccelerate.  If there really have been changes in the delivery and use of health care, then growth may remain subdued.  Looking at the years 1965 through 2011, the variables that were most highly correlated with health spending were inflation in the current year and inflation in the prior two years and the growth in GDP in the current year and in the prior five years.  These two variables explained 85% of the variation in health spending growth.  This is amazingly predictive, and strongly suggests that economic conditions are the dominant factor in health spending increases.  “Excess” health spending, however, the rate at which health spending growth is greater than potential GDP growth, has generally moderated in the last two decades, perhaps due to some systemic changes, such as greater consumer cost-sharing.  Looking forward, if economic growth increases, health spending will likely follow, perhaps exacerbated by greater spending spurred by full implementation of the reform law.

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