Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Deceleration in Health Spending: Is It Only the Weak Economy?

By John Reichard, CQ HealthBeat Editor

August 7, 2012 -- Government actuaries say the sharp downturn in health spending growth over the past few years stems from a weakened demand for services as Americans cut back on spending to cope with a weakened economy. But that may not be the whole story, some analysts say. They suggest fundamental changes in health care delivery also may be driving the slowdown.

Others, however, dismiss such talk as wishful thinking.

Prominent among those who see something broader at work is Peter R. Orszag, former head of the White House Office of Management and Budget in the Obama administration and former director of the Congressional Budget Office (CBO).

In remarks at a forum sponsored by the Center for American Progress, Orszag said a big part of slower spending growth "is a weak economy but it's not all the economy. There are structural changes that are happening out there in the field that are helping to mitigate cost growth."

Orszag elaborated on that point in an Aug. 1 Bloomberg op-ed piece. "Health care providers are anticipating a shift away from fee-for-service reimbursement, and they are increasingly using computer software to inform clinical decision-making and are 'bench marking' physicians—that is, comparing their practice norms with those of other doctors—to move toward better care," he wrote. "These structural changes are essential to maintaining slower health-care cost growth" as the economy picks up, he said.

Orszag and other analysts viewed as left-leaning emphasize how unusual the recent spending figures are.

"A common way to evaluate the growth in spending for Medicare is to compare the increase per beneficiary to income per capita," Orszag wrote. "Over the past 30 years, this excess cost growth for Medicare has averaged about 2 percent a year. The goal of many policy proposals, including provisions in the 2010 Affordable Care Act, is to reduce the future excess cost growth to about 1 percent annually.

"Over the past year, though, excess cost growth has been much less than the target of 1 percent. According to the most recent figures from the Congressional Budget Office, total Medicare spending this year through June rose 4 percent from the previous year. Meanwhile, the number of Medicare beneficiaries rose by almost 4 percent, too, and income per capita rose by about 3 percent. So excess cost growth has been significantly below zero, let alone below the target of one percent a year.

"That is a highly unusual situation," he told the CAP audience. "And again there has been a multi-year trend now of much slower growth rates."

Early this year, Commonwealth Fund President Karen Davis noted that overall health care spending in 2009 and 2010 grew at the slowest rates in 50 years. Davis cited figures from the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary. The figures showed U.S. health care spending grew 3.8 percent in 2009 and 3.9 percent in 2010. More recently, the CMS office has projected a 2011 growth rate of 3.9 percent. From 2000 to 2009, yearly health spending growth averaged 6.8 percent, according to CMS.

"Loss of jobs and insurance, slow growth in wages and family incomes, and greater out-of-pocket health care costs have undoubtedly caused uninsured, under insured, and low-wage workers and their families to forgo care, contributing to the slowdown in health care spending" Davis blogged on the Commonwealth Fund site Jan. 18. "An estimated 9 million people became uninsured when they lost a job with benefits over 2008-10, and they were much more likely than those who did not lose coverage to report delaying needed care," she noted.

Davis added, however, that "a major point that has been overlooked in the analysis is that CMS is projecting lower health spending over the rest of the decade. While it is almost certainly the case that the poor economy is having an effect on current spending, the recession doesn't plausibly explain why projected health spending in 2020 is substantially below estimates made just two years ago."

Blair Childs, a vice president with the hospital group Premier, said in a recent interview that pressure on hospitals to measure the quality and efficiency of their services are having an impact on spending. Medicare requires hospitals to report on and make publicly available such quality performance data and will soon lower payments to facilities that perform poorly. "Part of the reason that health care spending has been going down in the last three years is because of this movement," Childs said.

Growth Reasons Not Clearcut

However much merit such explanations have, pinpointing the factors driving spending changes and their precise impact is hard to do. The CMS actuaries the health policy community relies on heavily to explain why spending patterns change do not venture much beyond the economic downturn to explain the slowdown.

"There is no miracle at work here," says Joseph Antos, a senior scholar with the American Enterprise Institute, in response to suggestions that fundamental health care delivery changes may be occurring that will tame spending growth over the long term.

The CMS actuaries "see no basis whatsoever for thinking that this past few years of slower cost growth per person is going to last," Antos said in an interview.

The actuaries see a jump up in health spending growth in 2014 with the expansion of insurance under the health law (PL 111-48, PL 111-152), with spending rising 7.4 percent that year compared to 2013, notes Antos. And in 2021, the CMS actuaries say health spending will grow 6.2 percent compared to 2020. These figures show a rebound in spending growth rates compared low growth occurring now, Antos said.

"I think the reason they put those numbers in there was to show first the impact of the ACA and second their view that the basic forces that drive health care spending are normal there on out," Antos said.

Antos pointed to the conclusion of the actuaries in a June 12 article in the journal Health Affairs to make the point that spending on health care will rise as economic conditions improve and people have more money to spend, among other factors.

The actuaries concluded in the article that "by the end of the projection period [2021] higher income growth and the continued shift of baby boomers into Medicare are expected to cause health spending to grow roughly two percentage points faster than overall economic growth, which is about the same differential experienced over the last 30 years."

Gail Wilensky, who ran Medicare and Medicaid in the George Bush administration in the early 1990s, suggested in an interview that the unusually severe recession may have made people more hesitant to spend on health care than during other recessions. But she said it's also possible that changes in health care delivery are having an effect.

"Only looking at this as a loss in income per person may well understate the impact of the period we've been going through because it is so much greater and more extensive than what we've been used to experiencing during recession in terms of the depth of the wealth loss, the depth and duration of job loss, et cetera, et cetera," Wilensky said.

"Having said that, I do think. . . this [dropoff in spending growth] is definitely greater than what you'd expect purely on the basis of a recession alone. What is equally important to understand is we don't know what's driving it. And therefore it would be very foolhardy to assume it will necessarily continue because we don't really understand why this is happening right now."

Private sector changes preceding the health care overhaul, such as attempts by insurers to identify more efficient providers and to organize accountable care organizations outside of Medicare, may be having an impact, she said. "There is a lot of movement that is going on right now that could be at least contributing in the short term, to the slower than expected growth in health care spending," she said.

Wilensky added that the health care overhaul law may have helped to prod some of the existing private sector activity to find more efficient ways of delivering care. But it can't be said to be a factor in the current spending growth slowdown.

"I don't mind giving them some credit for being able to come into a lot of action that was going on and give it a booster shot," she said. But "the big caution going forward is that we don't know whether we will be able to sustain this in any way or not."

Publication Details