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Health Care Spending Slowdown

Posted May 23 2013 12:00am

For many years, projections from CMS and CBO have claimed that excess cost growth (i.e., growth in healthcare spending above and beyond the growth in GDP) will slow in the distant future.  One reason is mechanical, if current rates continued, healthcare spending at some point would make up the entire economy.  The mechanism through which the health care spending slowdown would occur was not known.

Nevertheless, the time for bending of the cost curve may be upon us.

A paper by Ryu, Gibson, McKellar and Chernew in Health Affairs finds that health care spending growth is slowing, and not just due to the recent recession. They conclude that:

During and immediately after the recent recession, national health expenditures grew exceptionally slowly. During 2009–11 per capita national health spending grew about 3 percent annually, compared to an average of 5.9 percent annually during the previous ten years. Policy experts disagree about whether the slower health spending growth was temporary or represented a long-term shift. This study examined two factors that might account for the slowdown: job loss and benefit changes that shifted more costs to insured people. Based on an examination of data covering more than ten million enrollees with health care coverage from large firms in 2007–11, we found that these enrollees’ out-of-pocket costs increased as the benefit design of their employer-provided coverage became less generous in this period. We conclude that such benefit design changes accounted for about one-fifth of the observed decrease in the rate of growth. However, we also observed a slowdown in spending growth even when we held benefit generosity constant, which suggests that other factors, such as a reduction in the rate of introduction of new technology, were also at work. Our findings suggest cautious optimism that the slowdown in the growth of health spending may persista change that, if borne out, could have a major impact on US health spending projections and fiscal challenges facing the country.

Cutler and Sahni note that if this trend continues, US healthcare spending projections may be off by as much as $770 billion .

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