Health-care spending slowdown (Choose Your Own Adventure edition)

August 10, 2012

Here's what we know for sure: Health-care spending has grown a lot slower in the past two years than it has in the decades before it. Last year, it grew just as fast as the rest of the economy.

What we don't know is why. There's some reason to believe that this has to do with the recession: Americans have cut back on health-care spending during an economic downturn. Others think that this is a more permanent trend, and point to longer lasting trends. As a health-care wonk, you could find evidence to point you in either direction just this week.

The New England Journal of Medicine published a paper this week titled "When the Cost Curve Bent," where researchers from the Center for Sustainable Health Costs suggest that the slowdown happened way before the recession. Their analysis shows -- and you can see it in this chart -- that excess health-care spending growth (any spending above and beyond potential gross domestic product) began to moderate in the early 2000s:

Most of the difference is that gray bar, the one that represents "non-personal health care." That pretty much includes the cost of private health insurance, alongside the cost of administering government health-care programs and medical equipment -- most of the stuff that isn't a doctor seeing a patient, or a prescription.

"The most important factor in 2003 was the net cost of private insurance (roughly the difference between premium revenues and payments to health care providers), which rose sharply," the researchers write. "In 2008 and 2009, that net cost dropped sharply, which, combined with reduced spending on structures and equipment, drove down overall excess spending."

That's the story why health-care costs are slowing. But if you read the Wall Street Journal Friday morning, you got a completely different narrative: Health spending is likely on the upswing as the economy recovers from the recession.

Anna Wilde Mathews and Jon Kamp reached out to America's major health insurance companies. They uniformly reported an uptick in doctors visits over the past year. "Tenet Healthcare Corp....said outpatient visits were up 5.3 percent over the last year," Mathews and Kamp write. "UnitedHealth Group, Wellpoint and Aetna all flagged upticks in outpatient use on recent earnings calls, with WellPoint and Aetna pointing to doctor services as well."

That suggests that some of the slowdown had to do with medical care that was delayed, not necessarily foregone altogether. As Americans go back to the doctor, we could see an uptick in spending.

There is one, point, however, where these two narratives converge. Mathews and Kamp note that hospital admissions, unlike doctor visits, have not rebounded. These visits tend to be more expensive and, if they continue to happen at lower rates, could contribute to a lower rate of spending growth.

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Ezra Klein · August 10, 2012