Health Affairs

Much has been made of the slowdown in health spending growth and the role played by the economy. I have to confess that my first take, after studying plots of business cycles and health spending, was that health spending “had a mind of its own” and paid no attention to business cycles. Consider the two most recent recessions depicted in the chart below. During the recession of 2001, health spending growth actually shot up at the same time that the growth in gross domestic product (GDP) was dropping, and continued to rise even after the recession officially ended.

During the Great Recession, spanning December 2007 through June 2009, the growth in health spending dropped by about 2 percentage points and then leveled off while GDP growth dropped by nearly 10 percentage points and then quickly rebounded to a more normal long run rate of growth (though not sufficient to make a large dent in unemployment). I hope you can see why I was skeptical of a predictable relationship.

In August, the Center for Sustainable Health Spending (CSHS) was awarded a grant from the Robert Wood Johnson Foundation to, among other things, examine the relationship between disease prevention and health care costs. This project heightened my interest in the wonderfully-researched report from the Congressional Budget Office (CBO) entitled Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget, and its excellent summary in the New England Journal of Medicine (NEJM).

The report was years in the making and is noteworthy for its original research and its thorough and insightful literature review. As the title suggests, its economic focus is on the federal budget. In some ways this is a very broad perspective as it brings into play smoking’s impact on employment and earnings (hence tax payments), as well as health care costs and Social Security payments. But in other ways it is quite narrow, being limited to federal revenues and costs. Before discussing this CBO report, and the complex economics of disease prevention and longevity it underscores, I’d like to create some context.

I am taking a break from analyzing national health spending sustainable growth rates to look at recent patterns of growth. I was inspired by the September 25 spending estimates from the Health Care Cost Institute (HCCI) showing an uptick in the growth rate for 2011 to 4.6 percent. Their press release included the following:

Health care spending growth has been on a downward trajectory. HCCI found spending growth slowed from 5.8 percent in 2009, to 3.8 percent in 2010 for those with employer-sponsored insurance. With a sluggish economy, many experts anticipated a modest growth rate for 2011.

“While it’s hard to know whether this means spending levels are going to continue rising, it clearly is a signal that we have to pay attention to,” said HCCI Governing Board Chairman Martin Gaynor, PhD, Professor of Economics and Public Policy at Carnegie Mellon University. “We need to continue studying these data to see whether this acceleration in spending growth is the beginning of an upward trend that will return us to pre-recession levels,” he added.

The Center for Sustainable Health Spending (CSHS) has developed data to support more timely tracking and analysis of health spending, prices, and employment. Using these data, I present findings that shed some light on the issues raised by the HCCI report.

As we embark upon a presidential campaign season, we can anticipate many lively debates on the topics of taxation and spending in this nation.  As health spending in the Unites States accounts for 18 percent of our gross domestic product – a rate often called unsustainable – it is critical that we be clear-eyed in... Read the rest of this entry »

Since last March when we began tracking national health expenditures (NHE) on a monthly basis, we have been wondering when the health spending share of GDP would hit the 18 percent threshold. The recent downward revision of historical GDP estimates has provided the answer – it already happened — back in the summer of 2009,... Read the rest of this entry »