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Has the Cost Curve Bent?

By May 16, 2013Commentary

It was anticipated that the recent deep recession and weak recovery would impact health spending, since that typically happens in economic downturns.  Recent research suggests that perhaps this slowdown will continue and lead to a sustained lower growth rate in coming years.   (HA Article)   From 2009 to 2011 per capital national health spending grew about 3% annually, compared to 5.9% in the previous 10 years.  It should be noted that this is still in excess of GDP growth or general inflation.  Looking at a population of ten million members with coverage from large employers over a five year period, the authors attempted to ascertain what factors might account for the lower growth rate.  The researchers specifically focused on job loss and benefit changes that shifted costs to employees as potential factors.  The authors found that between 2007 and 2009 spending in large firms grew more rapidly than in the country as a whole, but in 2010 this pattern reversed and growth in large firm spending remained low in 2011.  It appears that increased out-of-pocket costs for employees was responsible for about 20% of the spending slowdown, which leaves a large part unaccounted for.  The authors suggest this is not likely linked to economic factors, which they interpret as meaning that the slowdown is more likely to endure.

The extent to which spending growth will remain relatively low will be confounded this year and next as the health reform law is fully implemented, with general expectations that spending will rise.  Provider consolidation has also continued apace which may will not likely have a beneficial effect on costs.  On the other side, reform may bring even more people under high-deductible, high co-pay benefit designs, which do appear to have a sustained effect on people’s use of health services, although the effect of the reduced use of services on health outcomes is as yet unclear.  One category of health spending, drugs, has sharply lowered its growth rate, largely due to use of generics, but new specialty medications and fewer drugs coming off patent are likely to end that trend.  So it likely is premature to declare victory on excessive health spending growth.  We’ll know more in 2015.

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