Sluggish economy mostly caused slowdown in health spending

By BenefitsPro

By Amanda McGrory-Dixon

The slow growth of health spending can mostly be attributed to the economy, and if the economy strengthens as expected, it could lead to quick growth, according to a Kaiser Family Foundation analysis released Monday.

Between 2009 and 2011, government statistics show that health spending jumped 3.9 percent every year, marking the slowest growth since tracking began in 1960. The trend continued last year, leading to an average growth of 4.2 percent each year from 2008 to 2012. This is much lower than the growth of 8.8 percent between 2001 and 2003.

Among the economic factors that are impacting health spending are the growth in Gross Domestic Product and inflation. Kaiser's people expect this effect to last for six years. Although the recession came to an end in 2009, they projected slower-than-typical health care spending for several more years.

The economy accounted for 77 percent of the reduced growth in health spending, Kaiser's study found, while the other 23 percent is attributed to changes in the health care system, such as higher deductibles and other cost-sharing measures.

“The problem of health costs is not solved, and we need to be realistic that health spending increases will return to more typical levels as the economy improves,” Drew E. Altman, president and CEO of the Kaiser Family Foundation, said in a statement.

“But the analysis also shows that the economy is not the entire story, and if we could shave even a percentage point or more off annual health care spending increases, we could save trillions of dollars over the next decade.”

Economic growth is forecast to increase health spending by adding 3.5 percentage points to the annual growth rate by 2019. With this figure, the annual growth rate in health spending would reach more than 7 percent, which is more in line with historical averages.

Although they were not considered in the study, many other issues could change the pace of health spending in the near future.

More people are expected to be enrolled in insurance plans under the Patient Protection and Affordable Care Act, so that will mean a slight increase in health spending. Also, new delivery models are being created, and higher deductibles are being seen in private insurance plans – both of which can impact cost growth.

As national health expenditures came to roughly $2.8 trillion in 2012, a single-digit drop in growth could cut spending by at least $2 trillion in the next decade, Kaiser said.

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