Perspectives on Health Care Spending Growth

January 1, 1970

There’s a heated and continuing debate over the recent  slowing in the pace of health care spending growth: Is it a lasting change? Or a temporary one?  This paper argues it’s temporary.  It explains the slowdown in health spending growth observed since 2002 as largely the result of two recessions that occurred in the last decade, rather than representing innovation in health-care delivery or a surge in efficiency. 

Changes in Gross Domestic Product translate into changes in health spending, not immediately, but over a number of years.  Consumers may cut back on elective procedures when the economy sours, but employers and insurers react more slowly and it takes time for insurance coverage to affect consumer and provider behavior. Sheiner points to two factors that have been driving up health care spending over the past few decades: One, the price of health care has risen faster than other prices. And, two, the share of total health spending that consumers pay out of pocket actually has been falling in the past few decades, as Medicare and Medicaid expanded and private-insurance deductibles, coinsurance and catastrophic limits haven’t keep pace with rising health spending, and insurance has covered a greater share of services.