WASHINGTON — Has the monster of exploding health costs finally been slain? After five years of slow spending growth, it’s tempting to think so.
This would be fabulous news, because rising health spending has had damaging side effects. It has reduced workers’ take-home pay, as employers devoted more compensation dollars to insurance and fewer to wages and salaries. Growing government health spending (mainly through Medicare for the elderly and Medicaid for the poor) has had a similar effect. It has squeezed other public programs.
The trend lines seem favorable. Recently, the Centers for Medicare and Medicaid Services reported that from 2009 to 2013, annual increases in health spending averaged only 3.9 percent — well below historical experience. As recently as 2007, the gain was 6.3 percent. The result: Since 2009, health care’s share of the economy has stabilized at 17.4 percent of gross domestic product. Although that’s $2.9 trillion ($9,255 for every American), health care is no longer siphoning more resources from the economy’s other sectors.
Can this continue?
Unfortunately, experts disagree. Differing on what has caused the slowdown, they split on how long it will last.
One theory is that a weak economy translates into weak health spending. A study last year by the Kaiser Family Foundation — a nonpartisan research group — attributed three-quarters of the slowdown to the economy. The trouble is that there’s no simple explanation of why. The conclusion reflects a “statistical analysis of 50 years of health spending and economic trends.” Larry Levitt, one of the study’s authors, says these relationships predicted a continued slowdown in 2013. Now, spending is expected to accelerate.
Other analysts argue that the spending slowdown began before the recession, suggesting the causes lie elsewhere. One underappreciated change has been the rise of high-deductible insurance policies coupled with “health savings accounts.” The HSAs allow workers and companies to make tax-free contributions that can be used for out-of-pocket health expenses.
When people spend their own money — not insurance funds — they’re usually more careful in how they use health care, says Grace-Marie Turner of the Galen Institute, an HSA advocate. The CMS report agreed, finding that consumers “in high-deductible plans tend to use (health) services at a lower rate than those enrolled in plans with lower or no cost-sharing.”