Health care spending: some room for optimism

by The Incidental Economist on January 16, 2014 · 3 comments

For some time, experts have realized that we don’t have a long term spending problem as much as we have a long term health care problem. In the future, it’s been expected that health care spending will be the major driver of deficits and our long-term fiscal problems. This has been, largely, because in the past health care spending has increased at a rate far above that of inflation.

This chart, produced by the Bipartisan Policy Center based on CBO data from 2011, shows the projected spending on health care, social security, discretionary, and mandatory by the federal government, as a percentage of GDP. As you can see, for all our hyperventilation about social security, it’s relatively stable once we get about 20 years out. Discretionary and other mandatory spending are similarly flat over time. But healthcare… that’s what’s going to get us.

CBOten_1

Or is it? The most recent analysis of health spending, looking at 2012, was published in Health Affairs just recently. Its findings are remarkable:

For the fourth consecutive year, growth in health care spending remained low, increasing by 3.7 percent in 2012 to $2.8 trillion. At the same time, the share of the economy devoted to health fell slightly (from 17.3 percent to 17.2 percent) as the nominal gross domestic product (GDP) grew by 4.6 percent. Faster growth in hospital services and in physician and clinical services was mitigated by slower growth in prices for prescription drugs and nursing home services. Despite an uptick in enrollment growth, Medicare spending growth slowed slightly in 2012, mainly due to lower payment updates. For Medicaid, slowing enrollment growth kept spending growth near historic lows. Growth in private health insurance spending also remained near historically low rates in 2012, largely influenced by the nation’s modest economic recovery and its impact on enrollment.

Since 2009 or so, health care spending has slowed, dramatically. Its growth of only 3.7% last year would have seemed unthinkable just 5 years ago. And yet, this type of slow growth has been going on for four years now.

Spending in Medicare hit about $573 billion in 2012, increasing by 4.8%. But given the numbers of seniors graduating into the program each year, this wasn’t as high as many thought it would have been. Fee-for-service expenditures grew only 2.7%, compared to 4.3% just the year before. Spending per enrollee also slowed, from 2.5% in 2011 to 0.7% in 2012. These kind of of signs are amazingly good news for those concerned about our ability to cover seniors in the future.

Medicaid accounted for $421 billion in both state and federal spending in 2012. Its spending increased 3.3% in 2012, compared to 2.4% in 2011. But these are the two lowest growth rates in the history of the Medicaid program. Per enrollee growth in this program was only 1.7% in 2012. Granted, spending on Medicaid will go up significantly in 2014, with the beginning of the Medicaid expansion, but this internal growth shows that Medicaid has been able to keep spending growth far below what many would have predicted just a short while ago.

Health care spending grew more slowly than the economy, which was unthinkable a short time ago. Measures like the Independent Payment Advisory Board (IPAB), which draw a lot of ire from those who oppose the ACA, don’t even come into play until health care spending grows a percent or so faster than GDP. If current trends continue, it wouldn’t ever get to make a recommendation.

But no one knows if they will. It’s clear that a slower economy has some part to play in reduced health care spending. When people have less disposable income, they tend to spend less on health care. But others believe that other factors, some due to the Affordable care Act, are to blame. It’s also true that we haven’t seen as many huge technology or pharmaceutical releases in the last few years, which also tends to keep spending growth down.

Whatever the reason, though, there is some room for optimism where only recently there had been panic. Health care spending, while still a future problem, may not be as bad as we had thought not too long ago.

Aaron

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{ 2 comments }

wegotcurves.com August 24, 2014 at 1:55 pm

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????nba September 28, 2014 at 5:38 am

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