Last August, I wrote a JAMA Forum post about the slowdown in health care spending and speculated about whether the slow growth is likely to continue. The release of 3 new studies on this issue enables us to revisit the subject.
Gail Wilensky, PhD
There is no question that health care spending has been increasing at an unusually slow rate. From 2009 to 2011, spending grew at an average annual rate of 3.9%, the lowest rate of growth in the last 50 years. In the preceding 10 years, the annual growth rate averaged 5.9%. It was particularly high in the early part of the last decade, increasing 7.7% annually from 2002 to 2006. Growth in health care spending began to slow starting in 2007.
Clearly, a significant driver of this slowdown has been the deep recession of 2007 to 2009, along with the painfully slow recovery the nation has experienced in the years since. What is less obvious is how much of the slowdown is attributable to structural changes in the delivery of health care—for instance, the introduction of accountable care organizations and other shared savings programs that change incentives for clinicians and health care facilities, the adoption of high-deductible health care plans and other less generous plans that increase cost sharing for patients, and slower introduction or diffusion of new technology. A follow-up question is whether these structural changes are sustainable strategies to reduce spending or whether they represent one-time or limited-time savings. As I reminded readers in my August JAMA Forum post, the country has experienced a decade-long slowdown in spending before—in the 1990s—only to see the unusually slow spending replaced by a period of rapid spending growth.
The May issue of Health Affairs (Health Aff. 2013;32) contained 2 studies that suggest the slowdown reflects more than just the recession and the continued weak economy. The first article, by Alexander J. Ryu, Teresa B. Gibson, M. Richard McKellar, and Michael E. Chernew, looked at how much of the slowing could be explained by job losses and benefit changes that have shifted more of the costs to insured individuals. The authors examined data for insured employees of large firms from 2007 to 2011. Their analysis indicated that rising out-of-pocket payments accounted for about 20% of the observed slowdown. They also found that even when benefit generosity was held constant, a substantial deceleration in spending still occurred, which suggested the effect of more than changes in benefits. The authors suggested that the slowdown may reflect a slower diffusion of technology or more fiscally conservative practice patterns by health care practitioners but offered no data that support their hypotheses.
A second article, by David M. Cutler and Nikhil R. Sahni, found that the 2007-2009 recession accounted for 37% of the spending slowdown between 2004 and 2012. They attributed another 8% to declines in private insurance and reductions in Medicare rates, leaving 55% of the slowdown unexplained. They concluded that this reflected a variety of fundamental changes, including such things as less rapid development of new pharmaceuticals and imaging technology, increased patient cost sharing, and greater provider efficiency. Unlike the study by Ryu et al, this study provided some supporting documentation about the slowdown in pharmaceutical discoveries, changes in imaging technologies, and increases in cost sharing, but the authors did not estimate empirically how these changes contributed to the observed slowdown or how much they are likely to continue in the future.
We may find some answers in a third publication, which came to a very different conclusion based on a sophisticated analysis of the effects of the economy on health spending. In this study, researchers at the Kaiser Family Foundation (KFF) and the Altarum Institute’s Center for Sustainable Health Spending developed a statistical model to analyze how the growth in national health spending varied with macroeconomic indicators, using information from 1965-2011. In effect, they generated a “reverse forecast” by looking at how much changes in the economy as a whole were associated with increases in health spending.
The KFF study found that 2 variables—inflation in the current year and the prior 2 years plus growth in real gross domestic product in the current year and the prior 5 years—accounted for 85% of the variation in health spending. What is surprising here is not the importance of these variables, but rather the time it took for their effects to filter through the health system. The authors said this means that health spending is very responsive to changes in the economy, but that the effect is gradual and cumulative rather than immediate. Specifically, economic growth influences health spending over a period of 6 years and inflation over a period of 2 years, which means that the recent decline in health spending would be fully expected given what had been happening more broadly in the economy.
Unlike the other 2 analyses, the KFF study suggests that as much as 77% of the recent decline in health spending can be attributed to changes in the economy. Clearly 77% is not 100%, which means that structural changes have also had an effect, but a much more moderate one than was suggested by the first 2 studies. The KFF authors also recognized the short-term effects of previous attempts to slow spending, such as occurred during the 1990s, but they reminded readers that the bulk of Medicare savings included in the Accountable Care Act have not yet occurred and that changes in the delivery system that are currently under way could also yield benefits.
To me, the KFF study is a far more plausible explanation of what has happened to date; that is, it shows that most of what we have seen is related to changes in the broader economy rather than relying on hypotheses based on “unexplained variation.” However, it clearly leaves open the question of whether many of the innovations that are being implemented could produce benefits in the future.
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Gail Wilensky, PhD Gail Wilensky, PhD, is an economist and Senior Fellow at Project HOPE, an international health foundation. Dr Wilensky previously directed the Medicare and Medicaid programs and served in the White House as a senior adviser on health and welfare...