Health spending slowdown shows signs it will stick

Several studies suggest that lower-than-expected health spending growth reflects systemic changes, not just the most recent economic downturn.

By — Posted May 20, 2013

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Insurance benefit design changes, slower introduction of new drugs and technology, and improved physician efficiency are among the factors that researchers cited to explain the recent slowdown in the growth of health spending in the United States. Although spending rates historically have shot back up after such slow periods, some studies suggested that flatline growth might continue even as the nation's economy keeps recovering.

Researchers largely agree that the most recent economic recession helped restrain the rate at which health spending is increasing, in part through significantly reduced utilization of health care. Job loss reduced the rates of people who had health coverage through their employers, and more of those who were able to keep their jobs found that their subsidized benefits had become less generous during the economic downturn.

But even when accounting for these factors, spending growth still was more restrained than would have been expected, according to several recent studies. In two reports in the May issue of Health Affairs, for example, Harvard University researchers pointed to additional factors that might make the recent slowdown more than a temporary drop.

Looking at expenditure reports for 2008-2011 for people working for large employers, researchers for one of the studies found that spending growth for these consumers was considerably more rapid than for the U.S. as a whole, and there was no spending slowdown for these employees in 2008 and 2009. That period was followed, however, by a rapid slowdown in 2010 and only a slight growth acceleration in 2011. Health benefits became less generous over that time, but even when accounting for that shift, spending growth still fell substantially in 2010.

Because spending was restrained even for workers whose employers did not shift more costs to them, the researchers looked elsewhere for possible explanations. “This slowdown may be a reflection of broader trends toward slower diffusion of technology or more fiscally conservative practice patterns by health care providers,” the study stated.

Shifts in health care delivery as well as health system reforms authorized by the Affordable Care Act also might be contributing to restrained spending that could persist even as the U.S. economy continues its slow but steady recovery. A separate report from the Robert Wood Johnson Foundation and the Urban Institute, for instance, cited research pointing to such factors as increased hospital employment of physicians, new delivery models such as accountable care organizations and limits to patient cost-shifting under the ACA as possible drivers of a systemic spending slowdown.

Still, the institute researchers said the jury is still out on how prevalent these factors are.

“There are concerns, for example, that provider consolidation accompanying the development of ACOs could extract higher prices from payers over time,” the study stated. “Moreover, if the cost-containment efforts by hospitals and physicians that occurred in the past decade were prompted by slow economic growth and declines in insurance coverage, the motivation to contain costs may diminish as the economy recovers and coverage expands because of the ACA.”

Estimates could be wildly off

The Harvard University researchers acknowledged that their study is limited by its focus on large employers as well as its time period ending in 2011, when the economy was still relatively weak. But some of the recent system changes under health reform, new payment models and delivery overhauls have the potential to buck the trend when it comes to cyclical slowdowns in health spending growth, they said.

“Given the evidence from our analyses, we believe that current trends support cautious optimism that the spending slowdown may persist — a change that, if borne out, could have a major impact on U.S. health spending projections and fiscal challenges facing the country, among other factors,” the study stated.

Another study by a separate group of Harvard researchers in Health Affairs attributed only 37% of the slowdown from 2003 to 2012 to the economic recession that ended in 2009. An additional 8% was attributed to a shift from private to public health coverage as well as lower Medicare rates for certain services, leaving more than half of the slowdown largely unexplained — and making a strong case for more permanent structural changes being involved.

“We conclude that a host of fundamental changes — including less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency — were responsible for the majority of the slowdown in spending growth,” the study said.

The recent flatline spending effect had confounded earlier expectations, and if it persists, it has the potential to continue going against projections. The authors concluded that if the trends being studied continue during the next decade, 10-year public-sector spending growth could be as much as $770 billion less than projected.

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Parting of ways between economy and health spending?

Some researchers have pointed to possible systemic reasons for the recent slowdown in growth on health spending that go beyond the effects of the economic recession that ended in 2009. Even as the economy slowly improves, health system reforms could cause the flat line in health spending growth to continue.

Year Growth in health spending Growth in gross domestic product
2001 8.7% 3.4%
2002 9.5% 3.5%
2003 8.4% 4.7%
2004 7.1% 6.4%
2005 6.7% 6.5%
2006 6.7% 6.0%
2007 6.0% 4.9%
2008 4.6% 1.9%
2009 4.5% -2.2%
2010 4.1% 3.8%
2011 3.9% 4.0%

Source: “What Drove the Recent Slowdown in Health Spending Growth and Can It Continue?” Robert Wood Johnson Foundation/Urban Institute, based on data from the Centers for Medicare & Medicaid Services Office of the Actuary, May (link)

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External links

“The Slowdown In Health Care Spending In 2009–11 Reflected Factors Other Than The Weak Economy And Thus May Persist,” Health Affairs, May (link)

“If Slow Rate Of Health Care Spending Growth Persists, Projections May Be Off By $770 Billion,” Health Affairs, May (link)

“What Drove the Recent Slowdown in Health Spending Growth and Can It Continue?” Robert Wood Johnson Foundation/Urban Institute, based on data from the Centers for Medicare & Medicaid Services Office of the Actuary, May (link)

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