January 11th, 2008
Two trillion dollars is a lot of money. So when Health Affairs published earlier this week an official estimate of health spending in 2006 that exceeded that amount, it was big news. Media outlets all over the planet picked it up. The journal tallied a record number of pageviews for a single day – more than 100,000 – on its Web site. But many reports glossed over one of the more interesting details in the numbers from the Centers for Medicare and Medicaid Services. In contrast to the emphasis in a recent study by the Congressional Budget Office (CBO), CMS found that spending growth exceeded the growth in gross domestic product (GDP) by only 0.6 percent in 2006, and that health spending as a percentage of GDP has been flat since 2003.
The difference between growth in health spending and GDP constitutes a kind of de facto sustainability index for the health sector. In the long run, it tends to creep ever upward, averaging 2.1 percent per year from 1975 to 2005, according to CBO. In some long-term projections, health care eventually eats the nation’s entire economic output. Short-term lulls in excess cost growth, as CBO calls it, are sooner or later erased by cyclical surges. CMS analysts explained carefully this week how the current slowdown can be seen as a lagged effect of an eight-month recession in 2001, reflecting the time it takes for diminished receipts to work their way through corporate budgets and into health insurance contracts and premium outlays.
Cyclical effects are powerful, and not to be underestimated. But they’re not necessarily immutable, as the history of the health insurance underwriting cycle suggests. So is there anything about the current flattening out of the excess cost growth cycle that might inform policymakers’ urgent quest to subdue this fearsome dragon? Could there be a better time, for example, to start a serious conversation about capping the tax exclusion for insurance premiums? High-end workers with rich benefits will squawk, and so will their employers. But if the excess cost growth cycle is sensitive to corporate budgets, doesn’t that imply that corporate budgets are sensitive to marginal changes in premium expense, and that firms would be more likely to exercise restraint in purchasing benefits without this notorious sweetener? We’re hearing a lot about shared responsibility these days. This would be a nice place to start.
It’s not clear how quickly or effectively the nation can ramp up its capacity to produce comparative effectiveness research, as CBO’s Peter Orszag urges. But there is a political consensus in favor, and a U.S. clinical effectiveness institute could provide a platform for tackling supplier-induced demand, another politically uncontroversial desideratum.
Also on the short list of obvious possibilities, Paul Ginsburg’s commentary on this week’s CMS estimates cautions that the reported deceleration in spending growth is threatened by increasing hospital capacity in the communities monitored by his Center for Studying Health System Change. Here’s another powerful influence, not to be underestimated. But the profitability of the services that are driving a renewed medical arms race is a byproduct of specific payment policies that were made by human hands and can be changed the same way.
It’s always tempting to allow expectations to inflate during election years. Most of the talk in the months to come is going to be about coverage expansions, which cost rather than save money. But it’s also clear that affordability is a key to coverage. Health care cost growth is so deeply ingrained that it sometimes seems like a force of nature. But it ain’t necessarily so.Email This Post Print This Post