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Tying Health Spending to the Economy: What Does it Mean for the Future?




by:
Eric A. Klein
Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office

 
August 5, 2014

Previously published on July 28, 2014

Politicians, researchers, and other stakeholders have long recognized the importance of a slowdown in health spending in the U.S. Optimistically, the nation’s health spending has experienced a record slow growth rate in recent years, and the Congressional Budget Office (CBO) recently revised Medicare spending estimates downwards, albeit slightly. A recent article published in the Journal of the American Medical Association (JAMA) explores the trend and asks: Is it sustainable?[1]

The article uses data published by the Organization for Economic Co-operation and Development (OECD) to show that median rates of excess health spending growth—the extent to which health spending exceeds economic growth—have declined in recent years across OECD member countries. As identified by the article, the “most obvious possible explanation” is that this recent slowdown is related to the financial crisis of 2007-2009. After all, the economy affects health spending in a number of ways, both direct and indirect.

Focusing back on the U.S., a 2013 Kaiser Family Foundation Issue Brief asserts that national health care spending significantly responds to changes in the economy, and that the effects occur gradually as opposed to immediately.[2] Researchers relied on statistical models tracking national health spending and macroeconomic indicators—such as inflation and the growth in real GDP—over time.

The question looms that if the economy has a significant effect on health spending, what is to be expected during a period of recovery? Will health spending escalate? Will it revert to the pre-recession growth rate? Will the slowdown have any lasting effects? When will effects be realized?

The current capacity for prediction is limited. As the author of the JAMA article remarks, “The close relationship between health spending and economic growth may not persist in the future—the past is not always a prologue.” The analysis is complicated by additional factors, such as the Affordable Care Act, that impact how health care is delivered and paid for—the CBO announced earlier this year that it is no longer able to determine the effects on projections of U.S. spending and revenue of the provisions of the ACA that are not related to insurance coverage expansion.

[1] Squires, David. (2014). The Global Slowdown in Health Care Spending Growth, JAMA.

[2] Kaiser Family Foundation. (2013). Assessing the Effects of the Economy on the Recent Slowdown in Health Spending.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Eric A. Klein
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Government
Health Care
 
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