Editor’s note: This is one of several posts Health Affairs Blog will publish stemming from sessions at the June 2015 AcademyHealth Annual Research Meeting (ARM) in Minneapolis. Watch Health Affairs Blog for additional posts on topics raised at the ARM.

Author’s note: This post was inspired by an ARM session that I had the privilege of moderating. The policy roundtable included Melinda Buntin and David Stevenson of Vanderbilt University, discussing work they’ve done primarily under a grant with the Commonwealth Fund, and Michael Chernew of Harvard University, discussing work he’s done with Zack Cooper of Yale University, also primarily under a Commonwealth Fund grant. The views presented here should not be considered as necessarily representing any of those individuals, their institutions, or the Commonwealth Fund.

The slowdown in U.S. health care spending over the past several years has been the focus of intense debate. A lot is at stake: the $2 trillion in the title of this piece refers to the difference between aggregate national health expenditures for 2010 through 2019 as projected in March 2010 and the total now (as of October 2014) expected over that same period (Exhibit 1).

Much of the debate on this issue has been centered on three questions: What has caused this slowdown? Is it really a change? Will it continue?

Reframing The Challenge

Although the answers to those questions certainly are important, I suggest that, if they are not the wrong questions, they at least should be asked in a more productive context than often has been the case. Perhaps the more pertinent questions to ask are:

  • If we can agree on a set of potential causes (rather than the single definitive cause) for the recent trend, how can we act to extend those phenomena into the future?
  • How can we develop and apply policies to address what is probably a different combination of drivers of health spending growth in each set of local market circumstances — perhaps tailoring them differently according to different populations and different configurations of payers and providers?

The angst over health spending growth has been part of the health policy discussion for decades. In the second half of the 1960s, following enactment of Medicare and Medicaid, national health expenditures (NHE) grew from $42 billion to $75 billion, and their share of the nation’s economy (gross domestic product, or GDP) rose from 5.6 percent to 7 percent. In response to this increase, and the alarming prospect that health spending might soon exceed 8 percent of GDP, the Nixon Administration imposed controls on health sector prices. Despite these policies, and a succession of other attempts to control health spending, NHE grew steadily as a proportion of GDP for most of the next several decades — reaching the current level of 17.4 percent. It is easy to see how the belief arose that policy could accelerate health spending growth, but not slow it.

Through the late 2000s, there was one major exception to the long-term trend: from 1993 through 2000, NHE as a percentage of GDP did not increase (Exhibit 2). That lull can be attributed to two major factors. First, the 1993-2000 period was the heyday of managed care, during which private insurers had unprecedented control over provider payments — hospital payments per case from private payers actually decreased over those seven years. Second, GDP—the often-overlooked denominator in the NHE/GDP ratio—rose steadily during that period. Although the pause in health spending growth eventually ended, it provides evidence that a mix of public and private policies can, indeed, have an impact.

The slowdown in health spending growth over the past several years is the first time since the turn of the century—and the only other time for at least 50 years—that NHE has held steady as a percentage of GDP for this long. So, the question of whether a slowdown actually has occurred should be moot by now. The most important issue is how to sustain that slowdown into the future.

An Array Of Strategies Are Needed To Restrain Spending

That effort only will be successful if the trend in health spending is viewed not as a spectator sport but as a call to action, involving all stakeholders in the health system. Health spending is not an exogenous trend, but rather is generated by millions of decisions made by providers, payers, and patients; to paraphrase the quote from the political cartoon: “We have met the cause of rising health spending, and it is us.” But what actions should we take?

A framework presented by Donald Berwick and Andrew Hackbarth suggests an important perspective on this issue. They portray U.S. health spending as consisting not of one monolithic trend, but of a set of what they call “wedges.” Each wedge represents an area in which there is waste in the health system, and thus a potential target for policy and health care delivery reform. Their analysis implies that an array of policies would need to be developed to address waste in each of those areas.

Just as each component of health care spending needs to be addressed on its own terms, so the appropriate set of policies necessary to address them may differ by area, as most recently concluded by the Institute of Medicine (IOM). The IOM found that not only does health spending differ across geographic areas, but the pattern of health spending across areas is different for Medicare than it is for private payers, and the mix of services that account for spending also varies by payer and across areas. Addressing health spending growth therefore may involve developing area-, payer-, and service-specific policies.

Concern that health spending will surge continues, particularly as the economy gains strength. However, as pointed out above, those projections have overstated the growth that actually has occurred over the past several years (Exhibit 3). What happens in the future is directly related to what is done to address the factors that drive spending growth. We must face the fact that we largely have been asking the wrong questions for many years. We are starting to ask the right questions, and that offers hope that we will be able to control health spending more successfully than in the past.

Exhibit 1

Exhibits-1

 

Source: C.J. Truffer et al. “Health Spending Projections Through 2019: The Recession’s Impact Continues.” Health Affairs March 2010 29(3):522-29; A.M. Sisko et al. “National Health Expenditure Projections, 2013-23: Faster Growth Expected With Expanded Coverage and Improving Economy.” Health Affairs October 2014 33(10):1841-50.

Exhibit 2

Exhibits-2

 

Source: Centers for Medicare and Medicaid Services. “NHE Tables: Historical and Projections, 1960-2023.”

Exhibit 3

Exhibits-3

 

Note: Projected growth rate for 2009-2012 is as of March 2010; projected growth rate for 2013-2023 is as of October 2014. Actual growth rate for 2009-2012 is as of October 2014.

Source: C.J. Truffer et al. “Health Spending Projections Through 2019: The Recession’s Impact Continues.” Health Affairs March 2010 29(3):522-29; A.M. Sisko et al. “National Health Expenditure Projections, 2013-23: Faster Growth Expected With Expanded Coverage and Improving Economy.” Health Affairs October 2014 33(10):1841-50.