More on the bending of the health care cost curve

by on May 10, 2013 at 3:36 pm in Economics, Medicine | Permalink

If Slow Rate Of Health Care Spending Growth Persists, Projections May Be Off By $770 Billion

David Cutler & Nikhil Sahni
Health Affairs, May 2013, Pages 841-850

Abstract:
Despite earlier forecasts to the contrary, US health care spending growth has slowed in the past four years, continuing a trend that began in the early 2000s. In this article we attempt to identify why US health care spending growth has slowed, and we explore the spending implications if the trend continues for the next decade. We find that the 2007–09 recession, a one-time event, accounted for 37 percent of the slowdown between 2003 and 2012. A decline in private insurance coverage and cuts to some Medicare payment rates accounted for another 8 percent of the slowdown, leaving 55 percent of the spending slowdown unexplained. We conclude that a host of fundamental changes — including less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency — were responsible for the majority of the slowdown in spending growth. If these trends continue during 2013–22, public-sector health care spending will be as much as $770 billion less than predicted. Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.

This was sent to me in an email from Rob Raffety, but I believe it emanates from Kevin Lewis.  A link to the content is here.  Another relevant article is here, and it also sounds a cautiously optimistic note.

Clay May 10, 2013 at 3:56 pm

I’m lost since the papers appear gated. I’ve recently seen this rate slowdown stated in other places as well, but everything I can find on the topic of projecting rate growth appears to suggest that health care spending growth is predicted by GDP and inflation. So we’ve had lower GDP and inflation over the last few years, right? Is that really a solution to health care spending inflation? The paper may address my question – can anyone with access let me know more about what’s going on?

Marco May 10, 2013 at 4:12 pm

Medicine is the only major industry in which Cowen appears to celebrate the great stagnation. At the very least, he presents the decline of the rate of discovery of new medical breakthroughs and their translation into FDA approved pharmaceuticals and medical devices in a neutral fashion. But then it’s the fashionable view among the cognoscenti that we should slow the advance of medical technology.

Sometimes I wonder if people like Robert Reich and Ezekiel Emanuel are so gung-ho about tamping down on medical innovation because they know they may well be blessed with Ashkenazi genes for longevity.

Brad F May 10, 2013 at 6:27 pm

Marco
Please clarify. I hope you are not making an anti-semitic swipe?

Brad

valuethinker May 11, 2013 at 3:55 am

He is without doubt making an anti semitic remark about Jews of Ashkenazic (Eastern European) origin.

AFAIK the genetic data runs the other way. Ashkenazic Jews have an unusually high incidence of some heritable diseases like Tay Sachs, due to the genetic closeness of the community– very easy to marry a distant cousin.

This was in the context of a study that said Jewish males had marginally above average IQs (103 I think?) but that the downside is this high incidence of disease.

If they are long lived, it is more likely to be a consequence of the known correlators with long life (high education, benign upbringing, good birth weight etc.) than anything to do with being Jewish, per se.

That’s what identifies it as an anti semitic swipe. First it’s something that only applies to Jews, second it’s a falsehood about Jews (that they live longer due to genetic factors) rather than the truth of that study (that there is this high incidence of certain diseases of genetic origin).

Third it is to identify 2 proponents of one political viewpoint as ‘typical liberal Jews’. As opposed to ‘long lived intellectuals’ or ‘long lived Ivy League graduates’ or ‘long lived white males’ etc.

Right. Why did we not mention Sheldon Adelson, the right wing billionaire who gave so much money against Obama? He’s in his 80s? Surely HE shows that Jews live a long time, if anyone?

agorabum May 10, 2013 at 4:56 pm

The last 20 years have been a dizzying time of advances in medicine, diagnostics, and genetics. What it has not done well is consolidate the gains for efficiency, in part due to the structures that didn’t reward efficiency, but rewarded excessive over-utilization of new equipment and testing methods. A period of consolidation and efficient application is what is needed.
The vanguard can continue to develop new methods, techniques, and machines, but the bulk of medicine is better served making existing inventions and processes better.

Nate May 10, 2013 at 6:57 pm

I wonder if there is any impact from all the new non-FDA semi-medical products popping onto the market? Does your Nike fuel and, Zeo, FitBit count as medical spending? What about your Ant+ scale and blood pressure monitors? Do 23andMe count? What if any of these entertainment(?) diagnostics start having measurable health effects on the populous at large? When do entrenched rent-seekers become threatened by DIY medicine? Is the public less interested in what the medical professionals are selling? Sorry about the rambling.

Tod May 13, 2013 at 1:46 pm

I think this is a great point. The industry has been touting the emergence of the “Health Care Consumer” over this same measurement decade, but I don’t believe the traditional data collection methods include any of this spending (wellness programs, organic and health foods, fitness programs, non-traditional medicine, self-care, OTC medication, etc.).

Willitts May 10, 2013 at 7:01 pm

Will someone please DEFINE what “bending the cost curve” means so we can evaluate with data the truth value of hypotheses coming from this trite slogan?

I’ve never heard the term “bend the cost curve” used in any context other than health care costs. Why is that?

Maybe because it doesn’t exist.

yang May 10, 2013 at 7:39 pm

Awesome! Spending has slowed as medical innovation has cratered! Yeah!

Andre May 10, 2013 at 7:57 pm

This is the perfect outcome for this blog. We can blame the lack of innovation of Obamacare and leave the cost savings unexplained….

JWatts May 10, 2013 at 10:45 pm

and leave the cost savings unexplained…

Actually, there is no cost savings. We may just not be as broke as we thought we were.

skh.pcola May 10, 2013 at 9:16 pm

I’d imagine that the lowest labor participation rate in over 30 years, and the lack of medical insurance, has a lot to do with the “bending of the health care cost curve.” But it’s not polite to mention such things around neo-liberal Libertarians and progtards. Ozero the Hero has done gone and saved us all!

mulp May 11, 2013 at 1:00 am

Obviously, working causes illness, idleness promotes health.

You should write an economics paper and at least get a masters in econ.

JCW May 10, 2013 at 11:06 pm

Who is “Ozero the Hero”?

Is the point of this post that we should give everyone basic medical insurance?

prior_approval May 11, 2013 at 2:49 am

Banish the very thought, at least at a policy level – aren’t you a loyal reader of this blog?

Just look at what happened in Oregon, as highlighted at this very site. A disaster, apparently – such failures in providing basic health care in contrast to not providing it means that while health care may have some value, it is simply that for those without health care right now, there probably is little point in spending any money through Medicaid to provide them basic health care.

It is just a rational policy decision, after all. Recent alternatives offered at this site of how to improve basic health care seem to include the government buying patents it has issued, and prizes. With such advances available to those who can pay.

I’m sure the co-authors will explain how that works in combination with providing basic health care to everyone in due course. But then, I’m not a loyal reader either.

valuethinker May 11, 2013 at 3:57 am

Isn’t the rather obvious point that the US is in a very bad recession (or a failure to grow strongly out of one, to be more precise).

In that environment, costs get squeezed. Coverage is reduced either by reducing what healthcare operators offer, or what payers will pay OR by cutting the number of people with cover.

The mechanisms are interesting in the micro but the macro reason is clear– the US is in a growth slowdown.

mark May 11, 2013 at 10:10 am

“Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.”

Among other things, it would reduce GDP dollar for dollar. Another example of the issues with GDP.

Politics Debunked May 11, 2013 at 4:51 pm

re: “increased patient cost sharing”

That explanation gives a reason for pessimism since Obamacare next year will enact a low limit on the maximum deductible a policy can offer, as a favor to healthcare providers to reduce the likelihood of price comparisons. Some analysts suggest that the Medical Loss Ratio rules will also lead insurers to drop high deductible HSA linked policies.

In addition the actual *price* of healthcare, the medical inflation rate, has be pretty much on the same trend it has been. The issue has been total spending for those more expensive goods, which suggests perhaps the recession has played a role. There are *many* reasons to think Obamacare will work to drive up healthcare costs by reducing competition even further, and providing incentives for insurers to help let medical care costs rise (the Medial Loss Ratio rules provide distorted incentives to increase spending rather than reduce it, in addition to the oligopoly nature of the insurance industry making price wars less likely). More on the myriad ways favors for special interest groups aka “crony capitalism” aka “regulatory capture” are driving up healthcare prices and will get worse here:

http://www.politicsdebunked.com/article-list/healthcare

JonF May 12, 2013 at 2:14 pm

Maximum deductibles under the ACA can still be quite high, higher in fact than is standard under other types of insurance. My own health insurance comes with a 500$ deductible, which is actually on the low side for policies nowadays, and which will still be allowable under the ACA. Both my auto and renters insurance policies also have 509$ deductibles. I have asked this before and no one can explain it: why is 500$ auto insurance deductible appropriate while a 500$ health insurance deductible is somehow conducive to overspending?

JWatts May 13, 2013 at 10:10 am

I have asked this before and no one can explain it: why is 500$ auto insurance deductible appropriate while a 500$ health insurance deductible is somehow conducive to overspending?

Because car insurance doesn’t cover maintenance, such as oil changes, new tires, engine or transmission work, etc. Car insurance only covers accidents. If health insurance only covered accidents and not general health issues the two would be comparable.

Boonton May 13, 2013 at 10:59 am

If there was a good reason to think getting a regular oil change would reduce the risk of you causing an expensive accident, some auto insurance companies would probably include it as a benefit. Some arleady will fix small windshield cracks ‘for free’.

Unfortunately health care doesn’t break down so neatly into ‘major repairs’ versus ‘maintenance. If a yearly checkup can avert a heart attack and trip to the ER room or delay for a few years the onset of diabeties for 1 out of 50 patients, then it very well may make sense for insurance companies to cover it. More importantly, insurance companies may also want a patient to see a doctor if they have a ‘hunch that something is not right’. When you’re juggling $500 co-pays many people may err on the side of being penny wise and pound foolish.

Floccina May 11, 2013 at 8:10 pm

So Democrats will claim it is due to ACA.

JWatts May 12, 2013 at 12:35 pm

Possibly, but then if health care inflation increases rapidly when the economy starts growing, the blame will then obviously fall on the ACA. You can’t have it both ways.

Boonton May 13, 2013 at 3:29 pm

I think there’s a conceptual problem here. Consider the following.

In year 1 GDP is $100 and spending on health care is $20. Let’s say in year 20 GDP will be $150 (assume this is all in real terms, adjusted for overall inflation).

There will be $50 more to spend in year 10. What will it be spent on?

Well let’s assume the health care you could have brought in year 1 is still available for $20. Very strictly speaking, that and only that should be what we consider to be ‘healthcare inflation’. This is not easy to measure, though. YOu can’t walk into a doctor’s office in 2013 and ask him to only charge you for ‘medical know how’ circa 2003.

So with $50 extra dollars to spend in year 10 the choice has to be made between what’s available in year 10. Here it’s not just the innovation in health care but also in everything else as well as inflation everywhere else. If in year 1 coffee consumed $5 and in year 10 the same amount of coffee would cost $15 due to a worldwide blight on coffee beans, then maybe $10 of that $50 will go towards maintaining levels of coffee consumption. If people are even more into coffee, they might spend more than $10. Or on the other hand suppose medical innovation was bang on, but innovation in TV’s was even more impressive. In that case of the $50 new in additional spending, maybe $10 will go to coffee, $30 will go to TV’s and only $10 will go to health care.

At that point people will talk about how health care growth has been flat. The economy grew by 50% and health spending grew by only 50%. But coffee spending grew by 100%! A crises?!

The take aways here are:

1. Health care inflation should only be comparing like base to like base. The health care of 2003 should be compared only to that like care of 2013. Not all health spending or what the average person spends on care.

2. If health care increases or decreases as a % of GDP from a previous period, that has to be understood as a combination of factors: True health care inflation (if any), the availablility of new health care innovations to spend money on, the relative lack of availability of non-healthcare innovations to spend money on, true inflation in other sectors that may leave less or more money for health spending.

Discover More May 23, 2013 at 10:01 am

Extremely informative, looking forth to returning.

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