• What’s been driving the slowdown in health spending—and will it stick?

    Those are the questions that Amitabh Chandra, Jonathan Holmes, and Jonathan Skinner tackle in a new paper that you should read in full: Is This Time Different? The Slowdown in Healthcare Spending. Here’s a bonus comment from Doug Elmendorf, director of the Congressional Budget Office. 

    The 1990s present a cautionary tale for trying to read tea leaves about the recent downturn in health spending growth: it slowed during early 90s, but picked right back up toward the end of the decade. Commentary about recent downward trends have largely fallen into two buckets: it’s Affordable Care Act (often if you like it), or it’s the recession (often if you don’t). Chandra and Skinner find scant evidence to bolster either of those claims.

    The major drivers of the health care slowdown are changes in relative prices to consumers and providers, and technological growth – each of which will affect private, Medicare, and Medicaid patients differently.

    The rise in high-deductible health plans in the private market and managed care contracts in Medicare seem to account for part of the slowdown. The pace of technology diffusion also seems to have slowed; drug spending actually declined because of a substantial shift toward generics and an absence of new blockbuster drugs.

    But will the slowdown persist?

    In sum, we predict a middle ground; short of a fundamental change in how we pay for new cost-ineffective technologies, health care costs will bounce back to something closer to a growth rate of GDP plus 1% or more; perhaps not the “The Hills are Alive”, nor the cult horror film “The Hills Have Eyes.”

    Their predicted growth rate of GDP+1.2% is slower than we’ve seen in the past, but still not cause for celebration. That rate takes the health care sector’s share of the economy from its current 18 percent to 23 percent in 2032 and 28 percent in 2050. For reference, here’s a chart from the Kaiser Family Foundation on historical health spending trends in excess of GDP.

    excess-health-spending-growth-adjusted-for-gdp-and-inflation-health-costs-042213

    Though the acceleration of technology spending—particularly drugs—has abated, that spending is still growing (pharmaceuticals are only about 10% of health spending). Other devices and surgical procedures are on the rise, and the financial markets suggest continued development and diffusion of profitable medical technologies. There’s just not evidence that these long-term trends have been “fundamentally altered.”

    Though innovations in the ACA hold some promise for delivery system reform—which could lead to more prudent use of therapies—the authors conclude:

    [U]ltimately, we still must be concerned about the long-term technology pipeline that could continue to deliver new and expensive technology with very modest medical benefits, but very poor value for the dollar.

    Adrianna (@onceuponA)

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    • The rise in high-deductible health plans in the private market and managed care contracts in Medicare seem to account for part of the slowdown.

      So a little positive evidence for us advocates of very high deductibles (above $10,000/year).

      Their predicted growth rate of GDP+1.2% is slower than we’ve seen in the past, but still not cause for celebration.

      I wonder how that will look in comparison to the other developed countries.

    • Let’s not forget that Clinton was “blamed” for the slowdown in health care spending in the 1990s, a slowdown attributable to the growth of HMOs that, ironically, would have been averted, at least partly, if the Clinton reform plan had passed. The recent slowdown is attributable to the combination of a weak economy and, as pointed out by Ms. McIntyre, growth in out of pocket expenses (OOPEs). I suspect that the latter will continue to be a drag on health care spending notwithstanding the caps on OOPEs in ACA, both because the caps are so high and because the caps don’t apply to, among other things, non-covered services. For the few working Americans who save $100,000, $200,000, or $300,000, all can be lost in the event of a serious accident or illness, and all will be lost in the event of a chronic illness.

    • Most people think of illness as something treatable and temporary. Yet, the crisis in American health care is the result of the explosion in the number of cases of chronic illnesses. Today, over 135 million Americans suffer from chronic illnesses, a number projected to increase to over 155 million by 2020. For many of them, OOPEs means financial disaster.

    • Query how one relates the various growth rate projections described above to long term-federal and state fiscal projections such as those contained in this week’s CBO report.
      It would be useful to see what growth rate would be sufficient to alleviate the long-term federal deficit projections which, as we know, are largely a function of future healthcare costs.

    • while pharma is said to represent only 10% of health care spending, has anyone estimated the cost impact of the blockbuster era?