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Topics: Obamacare

Economic downturn explains most of health spending slowdown, study says

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Beltway Confidential,Opinion,Philip Klein,Obamacare,Health Care,Economy

One of the most spirited debates within the health care policy community revolves around the causes of the recent slowdown in the growth of health care spending in the United States – a trend that President Obama has tried to credit to his health care law. But a new study has found that most of the slowdown in health spending is attributable to the nation's broader economic downturn.

Health spending is on track to account for roughly one-fifth of U.S. gross domestic product by 2021 and it’s a key driver of the nation’s long-term debt. If health spending were in fact slowing down for the long term, the nation’s future fiscal picture would improve dramatically. But if such changes are short-lived and spending begins to accelerate as the economy gathers steam, there’s more to worry about.

The new study by David Dranove, Craig Garthwaite, and Christopher Ody of the Kellogg School of Management at Northwestern University, published in the journal Health Affairs, explored the issue by comparing health spending among geographical areas that were affected differently by the economic downturn. The results found lower spending growth in areas that were harder hit.

For instance, in Las Vegas and Birmingham, Ala. – which were hit badly – spending grew only 5.4 percent and 7.2 percent, respectively, from 2007 to 2011. But in Trenton, N.J., and Dallas – which fared better economically – spending soared more than 28 percent.

Overall, the authors calculated that “the economic slowdown explained approximately 70 percent of the reduction in health care spending for our sample.”

When people suffer declines in wealth in a weaker economy, they are more likely to cut back on spending that isn’t absolutely necessary.

The authors concluded, “Our estimates show that most of the recent slowdown in health spending growth, at least among the working population, can be attributed to the economic slowdown and not to other factors such as early responses to the [Affordable Care Act]. However, it is important to note that our findings do not automatically imply that spending will increase at a faster pace as the economy recovers, because the ACA (or other new factors) may offset future growth. That being said, our results indicate that future economic growth will cause health spending to be higher than it would have been if the economy remained stagnant.”

Many analysts assumed that health care spending would accelerate in 2014 as the economy improved and millions gained coverage through Obamacare. Early estimates from the Bureau of Economic Analysis, however, have proved erratic. Initially, the BEA estimated health care spending soared 9.9 percent in the first quarter, which would have been the fastest rate of growth since 1980. After further revisions BEA data now show health care costs actually shrank by 1.4 percent during the quarter — the deepest contraction since 1982.

Last week, BEA estimated that health spending was nearly flat in the second quarter, growing at a 0.7 percent rate, even as economic growth accelerated 4 percent.

Hard data on health care spending typically take a long time to gather, so it will likely be years before analysts have a firm grasp on the trend.

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