Health care spending growth is an important issue, especially since health care spending accounted for 17.5 percent of GDP in 2014. Health care spending growth slowed significantly during, and immediately following, the recession years. Between 2009 and 2012, per capita health spending growth hovered around 3.0 percent compared to 5.3 percent in the five years prior.
This slowdown has attracted considerable attention. Cutler and Sahni (2013) note that the slowdown may save as much as $770 billion compared to previous projections, if it persists. An analysis from the Urban Institute projects the associated savings will be $2.5 trillion from 2014-2019.
There has also been considerable speculation about whether the slowdown will continue. Some argue that the slowdown was rooted in the recession, with slow growth caused by loss of coverage from unemployment and recession-induced adoption of less generous plans. Often they argue that as the economy recovers, health care spending growth should rebound.
Others have argued that the slowdown reflected other factors such as a decline in technological innovation and intensified efforts of providers to slow spending growth in anticipation of system-wide changes, such as lower payment rates and broader payment reform. Evidence suggests that the slowdown started before the recession and affected populations not as strongly or directly affected by the recession. Of course, even if the recession was not the cause of the slowdown, spending growth may rebound as new prescription drugs are brought to market or if provider efforts to control spending wane. After all, the slowdown in spending growth in the 1990s was short-lived.
Evidence presented in this issue of Health Affairs suggests that spending growth has indeed begun to rebound, rising from 2.9 percent in 2013 to 5.3 percent in 2014.
Interpreting these new figures is complex, and they may not be as alarming as they seem. Specifically, demographic-induced changes in spending growth or increases due to expanded coverage, though meaningful, have different implications for policy than underlying fiscal pressure induced by rising spending per capita holding coverage generosity constant. Excess spending growth, defined as growth in real per capita health spending minus growth in real per capita income, is therefore a useful measure of health care spending growth as it removes the effects of inflation and population growth.
From 1970-2006, excess growth in health expenditures averaged roughly 2.4 percent. Going back as far as the 1970s, we have never experienced a decade with excess spending growth below 1.5 percent. However, health care spending growth slowed significantly during and immediately following the recession; from 2010-2012, excess health spending growth averaged -0.5 percent, increasing to 0.1 percent in 2013.
The recent data corresponds to an excess growth in health expenditures of 0.9 percent. While higher than the immediate past, this recent growth is still comparatively low. Additionally, some of the recent growth is driven by the expansion of insurance coverage. For example, the uninsured rate declined from 17 percent in 2013 to 12 percent in 2014, after ACA coverage expansions and exchange provisions were implemented. Health care spending growth should slow as coverage rates stabilize to form a new baseline. Thus, the underlying pressure from medical innovation and price increases remains historically low.
Over the coming years the rate of health care spending growth will, appropriately, attract great scrutiny. The focus of most cost containment should be on excess spending growth (being more efficient per capita), as opposed to the aggregate rate of growth. More importantly, we need to recognize that spending growth is not beyond our control, so we should not be passive observers. The persistence of the slowed spending growth depends on our collective actions.
Our ability to develop new payment models and/or benefit designs that balance the fiscal pressures associated with new medical technologies with economic constraints in a manner generally accepted by most stakeholders will be crucial not only to the viability of the health care system, but also to the fiscal health of the nation.