Is Lower Health Care Spending Good for Our Health?

Originally posted 2/21/2012

I believe the most important scholarly publication in January, 2012 was Health Affairs’ Growth in U.S. Health Spending Remained Slow in 2010; Health Share of Domestic Product Was Unchanged From 2009. This annual report from the Office of the Actuary and the National Health Expenditure Accounts Team of the federal Centers for Medicare & Medicaid Services (CMS) always gets substantial coverage in the mainstream press and this year was no exception.

Why are health expenditure trends so important to improving population health? Because the amount we spend on health care in the United States is the elephant in the room regarding aligning resources appropriately to make us healthier and reduce disparities.Some believe that our ever-increasing health care spending is a sign of market success, to be celebrated like Apple iPad sales. But the fact is we spend far more than any other country and still have poorer outcomes, and many experts believe a quarter to a third of what we spend is ineffective or wasted. In our resource-limited world, increases in health expenditures prevent investment in other health promoting areas like education. Even leadersofmajorhealthcareinstitutionsarecallingforincreasedsocialserviceexpenditures to improve the health of those seeking care in their institutions.

The article reported that health care spending reached $2.6 trillion in 2010, or $8,402 per person. Due to low annual increases of 3.8% in 2009 and 3.9% in 2010 (lower than any period in the last fifty years), the health care share of total spending stabilized at 17.9 percent of GDP. Authors attributed this to slower growth in use of hospitals, physicians, and drugs; from losses of private health insurance coverage; lower median household income; and uncertainty about the financial future. Importantly, the federal government’s share of total expenditures increased to 29% (up from 23% in 2007) while state and local government’s share fell to 16% (from 18% in 2007). Employer contributions fell to 21% from 25% in 2001, while consumer out-of-pocket spending increased by 1.8%. While in previous years’ growth in use of services (as opposed to population growth or price increases) has been a major factor in the overall increase, this year it contributed only 0.1% of the 3.9% increase. Governmental public health spending increased by 8.2% to $82.5 billion, but this still accounts for only 3.2% of overall spending.

So is this good or bad news? Most news coverage highlighted the welcome second year of expenditure slowing, but noted that it might be transitory as the recession ends. Any slowing is in the right direction, but 3.9% is still greater than the 1.5% increase in the Consumer Price Index in 2010, and most of the increase was from price increases — not from greater demand. While slower growth could lead to better insurance coverage over the long haul, it likely had no impact in a single year. Consumers with economic challenges are using less health care, but this is not a good thing if due to delaying or avoiding necessary acute and preventive care. There is certainly no way to tell if lower spending rates translated into more investment in public health and other health promoting education and social service categories; any such result would have to await a longer term trend of getting health care spending close to the general inflation rate for all goods and services. 

So one year during an economic slowdown does not a population improvement trend make. But we need to know how we are doing, both nationally and also at local levels where such data is often not available. Hats off to CMS and Health Affairs for continuing to produce and promote this important annual report card.

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