iProtean—Health Spending and the Economy

Researchers and policy makers have been investigating whether the recent slowdown in health spending has resulted from structural changes in health care or from broader economic forces, specifically the recession in 2007 through 2009.  A recent study by The Kaiser Family Foundation and the Altarum Institute assesses the correlation between health spending and the economy. “This analysis will not settle that debate—especially about what the future holds—but will hopefully illuminate it,” wrote the authors of the study. (“Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” Kaiser Family Foundation, April 2013)


The context for the analysis is apparent in the numbers:  health spending has been growing at historically low levels in recent years. In 2001 through 2003, health spending peaked at 8.8 percent. By 2009 to 2011, it grew by only 3.9 percent, and researchers estimate that 2012 health spending growth climbed minimally to 4.3 percent.


Using 50 years of health spending and economic trends, the researchers found that the vast majority (77%) of the recent decline in the health spending trend can be attributed to broader changes in the economy. They also noted that structural changes in the healthcare system may be playing a modest role as well. Twenty-three percent (23%) of the decline resulted from healthcare system changes such as higher deductibles and other cost sharing initiatives that discourage use of services, as well as various forms of managed care and delivery system changes.  While discussions in the healthcare community have focused more on changes in delivery, the researchers noted that it is difficult to determine which of these developments is having a greater impact.


The researchers concluded that over time the economy is by far the biggest determinant of changes in health spending overall. Increases in health expenditures are likely to trend upwards over the coming decade as the economy returns to a more normal rate of growth. Sustaining low growth rates in health spending will require continued pressure for containing costs throughout the system. (“Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” Kaiser Family Foundation, April 2013)


Figuring this out is not an academic exercise. Health spending has major implications for policy:

  • Health spending growth is a major driver of federal and state budgets through the Medicare and Medicaid programs, as well as the tax exclusion for employer-sponsored insurance.
  • Beginning in 2014, health spending growth will also affect the federal cost for subsidies provided to low- and middle-income people buying coverage through new health insurance exchanges.
  • Health spending growth is an important factor in estimates of the federal budget deficit, and the Congressional Budget Office (CBO) recently lowered its forecast of future Medicare and Medicaid spending based on the historically low rates of growth of health spending in recent years.
  • An understanding of what is driving changes in health spending will also be important for interpreting what happens as the Affordable Care Act (ACA) goes into effect. For example, if policy makers believe health spending growth will remain low, they may be satisfied with current cost containment strategies; if they do not, there may be greater impetus to consider new efforts to address health care costs.


HFMA weighed in on the Kaiser/Altarum study with this comment:  “It’s not surprising that healthcare cost growth is correlated with the strength of the economy. The key to sustainability over the long term is limiting excess cost growth, which has fallen to levels not seen since the managed care boom of the mid- to late 1990s due to mechanisms such as high-deductible plans and better coordinated care via patient-centered medical homes, accountable care organizations and bundled payments.  If these initiatives suffer the same fate as managed care plans in the 1990s, however, state and federal agencies likely will further intervene to try to constrain cost growth.” (“Study: Slowdown in Health Spending Growth Linked to the Economy,” HFMA, April 22, 2013)


To read the full study from The Kaiser Family Foundation, please click here



iProtean subscribers, please note the new advanced Finance courses in your library: Value-based Purchasing and Accountable Care Organizations, Transforming Your Organization into an Integrated Delivery System and Financing Considerations for Integrated Delivery Systems featuring health experts Marian Jennings, Dan Grauman, Lisa Goldstein, Nate Kaufman and Monte Dube.



For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here