Researchers have pegged the gentler rise in health care costs over the last decade to factors that many might consider less obvious. A study found that insurance and technology issues were the main reasons why the rise in health costs haven’t been so steep of late — playing a larger role than the latest financial crisis or the Affordable Care Act.
The rise in high-deductible insurance plans, efforts to control Medicaid costs at the state-level, and a more sluggish spread of new technology — especially to the Medicare population — were listed as the three main reasons for the slowdown to the usual pace in health care costs. But the National Bureau of Economic Research study was pessimistic about how long this slowdown would last.
“The primary determinant of long-term growth is the continued development of expensive technology, and there is little evidence of a permanent slowdown in the technology pipeline,” authors, Amitabh Chandra and Jonathan Holmes of Harvard University, and Jonathan Skinner of Dartmouth College, commented in their study. “[O]ur best estimate over the next two decades is that health care costs will grow at GDP plus 1.2 percent; lower than previous estimates but still on track to cause serious fiscal pain for taxpayers and workers who bear the costs of higher premiums.” One specific example they note is the cost of proton beam accelerators, which is projected to double between 2010 and 2014.
Last year, Chandra and Skinner noted in another study that health care spending in the U.S. surpasses all other countries with regard to level and rate of growth. Between 1980 and 2008, health care spending grew by 7 percentage points of GDP, which is far higher than the average 2.6 percentage points experienced by countries belonging to the Organization for Economic Cooperation and Development (OECD). Yet the authors point out that lately there has been a moderation in health care spending growth, with one study estimating the “unexplained” decline to be around 1 percent.
This has raised a question that has gained a lot of press and government attention: Is this slowdown in the rise in medical costs a permanent or fleeting shift in the U.S? Chandra and colleagues answer that any claims that this marks a stable change is baseless. They noted that a decline in health care costs as a fraction of GDP occurred in the early 1990s only to be followed by a “strong upward trend” later that decade.
The authors also noted that growth in health care spending isn’t necessarily linked to GDP growth, which has slowed thanks to the economic meltdown. “Unlike other types of consumption, health care in the United States is an aggregate of very different systems — private, Medicare, and Medicaid — whose dynamic paths of quantity and costs do not move in lock-step with one another, particularly during a recession or business cycle expansion,” they explained in the study.
But the authors still identified some significant positive changes, some involving the interplay between providers and insurers. They note, for example, that private insurers have gained more clout by having a higher number of people enrolled in their plans due to shifts in health care. This has resulted in insurance companies demanding that providers practice more prudent and less wasteful care.
Another change for the better has been the bundling of payments, which encourages providers to use cheaper yet effective therapies rather than expensive but unproven ones. “Moreover,” the authors add, “on both sides of the political aisle there is consensus that fee-for-service creates incentives for overuse. And while the exact solutions to this problem may differ on the spectrum of market versus regulatory approaches to technology management, a Republican-led Congress would continue the move towards payment reform.”
“Yet ultimately,” they caution, “all these policy solutions must be concerned about the long-term technology pipeline that will continue to deliver new technology with large price-tags but with the potential for very modest health benefits.”
Source: Chandra A, Holmes J, Skinner J, Is this time different? The slowdown in healthcare spending. National Bureau of Economic Research, Working Paper 19700. December 2013