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.
Read the rest of this entry »