Downturn in Health Spending Attributed to Economy

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June 4th, 2013
Categories: Healthcare Reform

After several years of record-breaking growth, US healthcare spending has slowed down dramatically. Many are considering whether the decline in healthcare spending is mostly attributed to the economy or new healthcare reform.

health spending growthBoth the Altarum Institute and The Kaiser Family Foundation have investigated the reasons behind the downturn. According to Kaiser Family Foundation, about three quarters (77%) of the decline is due to the US economic condition. KFF finds that economic effects on spending are more gradual and cumulative than immediate. Factors associated with inclement economic times range from employers switching to high deductible plans that require large out of pocket costs before health insurance comes into play, to consumers being more cautious with their money in order to survive difficult financial times. Kaiser’s Senior Vice President Larry Levit said, “When people feel less secure, they are more hesitant to use the healthcare system,” therefore contributing to the slow down in health spending. The remainder of spending regression appears to be related to healthcare system structural changes.

The relationship between low spending and structural changes can be estimated by the amount of “excess” spending growth.  “Excess” spending growth is measured by how much faster or slower health costs are rising in comparison to GDP. From 1960 through 2011, health spending had an average growth of 2.6% faster than GDP. In the last 20 years, average excess has grown at approximately 1.6% faster than GDP. The slow down in “excess” percent growth indicates that early ACA provisions could also be regulating health spending.

With the current trend being tied to the economy, many expect a return to a more swift growth pattern as the economy recovers, but it is unlikely for growth rates to reach double digits like in past years. As “excess” health costs play a factor in the decline of growth, it will make similar impacts in its increase.  Upcoming healthcare reform changes could also cause a slight increase in health spending growth, particularly as more newly insured individuals begin gaining access to care.  Alternatively, healthcare reform should also help to control the amount of growth in health spending through its other components, such as lower reimbursement increases to providers, new delivery system models like ACOs or bundled payments.