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What Is Behind The Post-Recession Bend In The Health Care Cost Curve?

March 23rd, 2015

It has been a while since I last had the opportunity to analyze the slowdown in health spending and the extent to which it represents a lasting bend in the cost curve, as opposed to lingering effects of the “Great Recession or other temporary changes.” (See Note 1)

Distinguishing Health Care Cost Curves

When we discuss bending the health care cost curve, two questions arise: “Which curve?” and “Short run or long run?” In this post, I focus on the curve represented by the growth rate in national health expenditures (NHE) pre- and post-recession. Other curves of interest include “excess growth” (health spending growth in excess of gross domestic product [GDP] growth) and the closely related health spending share of GDP. For analysis of all three curves over the very long run, including a provocative “big bang” theory about the origins of excess growth, see Tom Getzen’s blog. A fourth curve that has gotten my attention, through the work of Gene Steuerle, is the health spending share of the growth in real per capita GDP. (See Note 2)

I now turn to the present topic, the record low growth in NHE that began in 2009 (the year in which the recession ended) and continued through 2013 (the most recent year for which we have official data). There has been extensive discussion about whether these low rates are the result of temporary cyclical factors, such as the recession, or more permanent structural factors. As detailed below, I conclude that, to a surprisingly large extent, the answer is neither: the bulk of the decline in the health care spending growth rate resulted from lower economy-wide price inflation and some temporary factors not tied to the recession.

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Further Thoughts On The Recession And Health Spending

May 7th, 2013

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.

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The Complex Economics Of Disease Prevention And Longevity

January 22nd, 2013

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.

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GDP+0: Prospects And Challenges Of Bending The Health Care Cost Curve

October 16th, 2012

Editor’s note: In addition to Kenneth Kaufman and Charles Roehrig (photos and linked bios above), this post is coauthored by Paul Hughes-Cromwick, a health economist and Senior Analyst at Altarum Institute and Charles Kim, a Senior Vice President at Kaufman Hall.

Health care costs are a major focus of the nation and individual states. This summer, Massachusetts legislated to bend its health care cost curve. While Massachusetts residents benefit from near-universal coverage via 2006 legislation, the State’s health spending per capita has long been well above the national average. In an effort to rein-in costs and achieve a sustainable spending growth rate, the State passed Senate No. 2400—“an Act improving the quality of healthcare and reducing costs through increased transparency, efficiency, and innovation.”

The Act establishes limits on health care spending growth—defined as not to exceed overall growth in Gross State Product (GSP) in 2013-2017 and GSP growth minus 0.5 percent for 2018-2022. Linking health care spending growth to GSP growth aims to cap health care’s share of GSP. (More precisely, the Act ties spending to the growth of potential GSP, which subtracts the influence of business cycle fluctuations. Since this is roughly equivalent to the long-term average growth in GSP, for simplicity’s sake we use the terms GSP and GDP, or gross domestic product, in the remainder of this post.)

What if Massachusetts-like spending restraints were imposed nationally? National health care expenditures (NHE), which constitute about 18 percent of the nation’s GDP, have been growing about 2 percent faster than the growth of U.S. GDP for most of the past 22 years, though this excess declined in certain years. The blue line in Figure 1 (click to enlarge) shows the change in NHE growth since 1990; the red line represents GDP change during the same period. Economists and health policy experts have started to analyze the fiscal implications of applying Massachusetts’ GSP+0 growth limits to NHE. This post builds on such analysis, looking specifically at the effects on the federal deficit and the Medicare HI Trust fund.

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2011 Health Spending Growth Ticks Up: Should We Be Concerned?

October 1st, 2012

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.

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What Is “Sustainable” Health Spending?

February 3rd, 2012

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 […]

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A Brief History Of Health Spending Since 1965

September 19th, 2011

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, […]

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