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Reasons for Health Spending Growth

By May 23, 2013May 24th, 2013Commentary

We all know that health spending in the United States has grown, a more interesting question is why, as the answer to that question will help design initiatives to control spending growth.  Research published in Health Affairs examines factors in health spending growth over the period 1987 to 2009 for both the Medicare and Commercial populations.   (HA Article)   The authors begin by noting that early working looking at cost rises from 1940 to the 1990s noted demand side factors like a phenomenal growth in the number of people with insurance, health technology advances and income growth.  From 1987 to 2009, however, there was little change in the number of people with coverage and some recent research suggest lower correlation between income and health spending.  The authors focus on two factors, the prevalence of treated disease, which may include over-diagnosis, and the increase in spending per treated case.  Note that the authors’ analysis is not per capita, but total health spending oriented and is based on survey data.  And while the authors try to hold spending constant for inflation, they do not appear to discriminate between the unit price and the utilization components of spending per case.  The study finds that about 51% of the spending increase is due to higher treated disease prevalence and about 39% to higher spending per case, thus accounting for almost all of the increase.   For Medicare, 78% is due to greater disease prevalence and 14% to higher per case spending, while for commercial insurance the figures are 33.5% and 54%.  This reflects the ability of Medicare to control reimbursement by fiat, while private payers are likely doing a good job on utilization control but losing pricing leverage vis-a-vis providers.  A number of common diseases account for much of disease prevalence growth and obesity is said to be responsible for 22% of the spending increase.  As the authors point out, strategies to reduce spending need to be heavily focused on these aspects of spending growth.

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