Researchers attribute 77% of the decline in health care costs to broader changes in the economy. However, some of the slowdown will continue due to structural changes in the health system.
Between 2009 and 2011, health care spending in the U.S. increased just 3.9% per year, well below long-term averages, and initial research suggests 2012 will post a similarly low rate of cost growth once the numbers are crunched. For employers that have faced cost trends in the past that were much higher than this, the recent cost trend has been a welcome development.
Of course, the key question that must be answered is whether this slowdown is a result of the overall slowdown in economic activity since the recession of 2008/2009 or whether there are long-term, systemic reasons for the slowdown in cost increases. If the economy is behind this slowdown, it follows that any pick-up in economic activity and growth will also increase health care costs once more. However, if there are other, more lasting reasons for the slowdown, there is hope that it might continue.
To answer this question, researchers from the Kaiser Family Foundation, the Altarum Institute’s Center for Sustainable Health Spending and the Fox School of Business at Temple University set out to determine the extent to which these two factors contributed to this slowdown in health care cost inflation.
In a nutshell, the researchers attribute 77% of the decline in health care costs to broader changes in the economy. However, there is reason to anticipate that some of the slowdown will continue due to structural changes in the health system, such as changes to the health care delivery system and the increase in the cost-sharing provisions employers have enacted in recent years. The researchers compared the current situation to the cost savings employers realized in the 1990s when managed care became the norm in health care.
“As the economy recovers, health spending is likely to trend upwards, though growth rates are unlikely to return to the double-digit levels we have seen in the past,” the researchers note. “Future health spending increases will also depend on whether ‘excess’ health costs remain at the relatively modest level of recent years or return to the historical norm.”
“Excess” health spending growth indicates how much faster or slower health care spending is increasing compared to the overall GDP. For example, from 1960 to 2011, this “excess” health spending has averaged 2.6 percentage points above GDP but it declined to an average of 1.6 percentage points over the past 20 years.
The wild card in all future scenarios is, of course, the impact of the Patient Protection and Affordable Care Act, aka health care reform. On the one hand, mandated coverage, subsidies and Medicaid expansion will bring many previously uninsured into the health care system with all of the pent-up demand for services that entails. On the other hand, increases in spending related to greater coverage could be counteracted by the law’s Medicare savings and changes to the health care delivery system, including accountable care organizations that pay for outcomes rather than specific services and bundled payments to health care providers.
Finally, the report notes that in the future, the health care reform law’s “tax on high-cost, ‘Cadillac’ employer-sponsored health plans, scheduled to take effect in 2018, is expected to trim the cost of benefits and could lead to lower overall health spending as well.”