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A slower rise on the rise: a sliver of hope?

By Kevin Wang

There has quite the discussion regarding the most recent health care expenditure numbers released by the Center for Medicare and Medicaid Services (CMS) in January. Health care spending increased by only 3.8 and 3.9 percent in 2009 and 2010, respectively. To put this in perspective, this seems disproportionately small relative to the prodigious growth in the 1980s and 1990s (13.1 and 11.0%, respectively). Furthermore, healthcare expenditures as percentage of GDP held steady at 17.9% for 2009 and 2010.

Naturally, it would be intuitive to attribute the recent recession to the plateauing in growth. Indeed, the recession was one of the most severe since the Great Depression. We saw the first decline in overall GDP in sixty years in 2009. The highest unemployment rate in 27 years translates into a larger loss of private employer-based healthcare coverage for consumers. Moreover, employers are increasingly more cautious of hiring in an economic downturn. With the lowest median inflation-adjusted household income since 1996, tightening household budgets further hamper consumers from affording the premiums for coverage and the deductibles and copays when seeking health services. Consequently, there is increasing impetus to postpone medical care, as demonstrated by the slowing growth in ER visits, outpatient visits, outpatient surgeries, and decreasing in median inpatient admissions in 2010. The recession has not only affected consumers and employers, but also the public arena, too. Tightening state budgets decreased growth in overall nursing home spending, which tends be a major expenditure for Medicaid.

Thus, there may be evidence to support the recessional effect in mitigating the acceleration of health care costs. But given the already evidenced deceleration health expenditures prior (7.6% and 4.7% in 2007 and 2008) to the official start of the economic downturn, could there be other potentially prominent factors contributing to the slowing? One can look as the Medicare expenditures as a likely indicator. Medicare utilization is typically unassailable to the effects of recessions given the federal government mostly pays for coverage. Regardless, inpatient utilization for Medicare beneficiaries in many states nonetheless dropped. Furthermore, nine states with 2010 unemployment rates lower than the national average demonstrated declines in health care utilization. Whether these states had an increasing unemployment rate during the economic downturn that is still considered absolutely low is another question. Growth in retail prescription drug spending has reached a historical low of 1.2 percent, emblematic of the increasing use of generic drugs, a dearth of in the introduction of novel drugs, and brand names such as Flomax and Lovenox coming off patent. There also has been an increasing prevalence of the high-deductible plans, which entails lower premiums but also increases cost-conscientiousness on the part of the consumer. Importantly, it is very possible the health care reform legislation process that ultimately led up to the ACA in 2009 and 2010 fomented an incipient nationwide dialogue on our complicated health care system that robustly affected consumer, provider, and corporate behavior. Lastly, the shift in provider culture to more coordinated care and quality measures, as evidenced by the inception of accountable care organizations (ACO) across the nation (with ACA provisions playing a major role in assisting providers set up ACOs) may not contribute significantly to 2010 figures due to its fledgling scope, but will prove most important in the future.

There is no doubt with the statistical trends we are witnessing, this is an encouraging moment for our society given Medicare and Medicaid expenditures precariously impact the long term solvency of our nation. However, it is important to keep in mind that a decrease in the rise attributed to a decrease health care utilization may not necessarily be a good thing. If decrease utilization precludes consumers from appropriately seeking care, we are only exacerbating the problem down the road. Ultimately, it may be too premature to confidently attribute the exact causes in the flattening in the growth health care spending. Nevertheless, it would provide a sliver of hope that taming the intractable rise in health care expenditures is not just a dream but also a reality. 

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