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Implications of a Health Spending Growth Slowdown

By May 20, 2013Commentary

The notion that health spending growth in the United States is slowing, perhaps permanently, is becoming an increasing topic among policymakers.  The most recent issue of Health Affairs is devoted largely to health costs and one article discusses the possible implications of a longer-lasting reduction of the rate of growth.   (HA Article)   For government spending, forecasting the rate of growth is critical and CMS and CBO have reduced near-term forecasts for spending increases, largely because of the slowness of economic growth.  If the slowing rate of growth extended for longer, the authors believe that spending could be $770 billion lower than currently believed.  The authors find a close correlation between income growth, national GDP growth and health spending and suggest that the recession accounted for about 37% of the spending growth slowdown.  Other contributors were differences in payers, primarily a shift to more Medicare and Medicaid, which determine prices by fiat or political wrangling, and Medicare reimbursement changes.  However, about 55% is unexplained, which leaves everyone wondering if something more permanent has changed in health utilization or pricing.  If the economy does return to more robust growth, according to most models, health spending will increase at least proportionately, if not more.  Other factors may also be more one-time, as opposed to ongoing changes that permanently lower the growth rate.  But maybe Americans are behaving in more healthy ways and are more cautious about running to the doctor.  And the effect of cost-shifting in private insurance may not be fully appreciated.  And growth in new technologies and treatment methods may have leveled off as well.  There certainly are fewer blockbuster drugs.  It would be a great boon to public finance if health spending increases are permanently lower, but we simply don’t know that this is the case yet.

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