The primary reason for the incredible slowdown in healthcare spending growth has been due to a sluggish economy, according to a new study from Northwestern University researchers.
The study, published in Health Affairs this week, suggests that as the economy continues to pick up steam, healthcare costs will also likely grow at higher rates than they have been for the past few years.
The primary driver of future debt and deficits in recent projections has been the growth of federal healthcare spending, something that has alarmed economists as a wave of baby boomers retires and more people are added to the Medicare and Medicaid rolls.
But over the last four years, healthcare spending has grown at a historically slow rate. Economists have credited the Affordable Care Act in part, as well as other reforms. But according to the new study, the recession and struggling economy together accounted for around 70% of the slowdown in healthcare spending.
“By exploiting regional variations in the severity of the slowdown, we determined that the economic slowdown explained approximately 70% of the slowdown in health spending growth for the people in our sample,” wrote the study’s authors — David Dranove, Craig Garthwaite, and Christopher Ody.
“This suggests that the recent decline is not primarily the result of structural changes in the health sector or of components of the Affordable Care Act, and that — absent other changes in the health care system — an economic recovery will result in increased health spending.”
Add the Northwestern study to a growing list of divergent analyses on the topic. Last year, researchers at Harvard University concluded the economy was not primarily responsible for the healthcare spending slowdown, providing evidence the trend could continue. The Kaiser Family Foundation found, however, that the economic downturn was responsible for about 77% of the health spending slowdown.
The Northwestern study relied on different methodology and techniques to arrive at its conclusion. It analysed data from the Health Care Cost Institute of 47 million Americans who had employer-sponsored health insurance.
The researchers compared healthcare spending trends from 2007-09 and 2009-11 in metropolitan areas that were hit particularly hard by the recession (like Las Vegas) and those that weren’t (like Dallas). It found that in places like Las Vegas, in which there was a 5.6% employment-to-population decline from 2009-11, health spending only grew 5.4% from 2007-11. In Dallas, which saw a 3% employment-to-population decline, healthcare spending exploded by 28%.
Here’s a chart showing that effect:
In their conclusion, the researchers warn their study does not mean spending will automatically increase, as reforms contained in the Affordable Care Act and elsewhere in the healthcare system could offset future growth.
There are also a couple of caveats — even if only 30% of the slowdown is due to reforms, that’s still a significant development.
Peter Orszag, the former director of the Office of Management and Budget, also pointed out a potential flaw — it only addresses people who have employer-sponsored insurance, and not Medicare. Medicare has seen extremely slow cost growth since the Affordable Care Act was passed — enough to extend the projected life of its major trust fund by at least 13 years.
“What this study doesn’t address is Medicare, where the deceleration can’t be explained by the economy,” Orszag said in an email. “That’s why I keep harping on Medicare as a better indicator of potential structural change than either total or commercial spending — Medicare is not strongly influenced by the economy and its enrollment is growing gradually, not in a step-function as the exchanges and Medicaid eligibility ramp up.”
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