Are dipping healthcare costs amid recession temporary?

by on December 8, 2013

piggy-bank-full-of-dollarsCould worries about rising health-care costs be unfounded? According to a recent report by the Kaiser Family Foundation and the Altarum Institute, there’s been a dramatic slowdown in healthcare costs due to the economic downtown.

The study found that between 2008 and 2012, spending only increased by 4.2 percent annually. Compare that to a few years before the recession hit, when healthcare spending in America was increasing at an annual rate of 8.8 percent between 2001 and 2002. 

That tiny 4 percent increase from the 2008 levels were the slowest rate of growth in half a century since the statistics were kept. Layoffs are believed to be a contributing factor, as it meant people were no longer able to obtain health insurance through their employers. Businesses may have also worked harder at trying to suppress spending growth.

In 2009, Americans spent an estimated $2.5 trillion on healthcare. A recent Kaiser  poll in September, 2013,  states eight out of ten uninsured people and more than half of insured say they skipped or delayed some healthcare this past year due to cost concerns. In light of what may appear like a solution to fears that universal healthcare is on track to bankrupt the nation, here are a few questions that the latest studies have raised.

How much of a role did the recession play in driving down spending?

A lot, according to the Kaiser Family Foundation and the Alatrum Institute.

The report attributed about three-quarters (77 percent) of the decline in health spending growth to changes in the economy. The main factor was likely the 2007-2009 recession. The researchers project that there will be a one-time increase of two to three percentage points in health spending growth in the lead-up to the Affordable Care Act goes into effect in 2014, when millions of uninsured Americans will get coverage.

But will the patterns of slow health-care spending persist even after the recession?

Harvard economist David Cutler, who led a study on government healthcare spending trends, believes that although the days of the recession may be waning and giving way to an economic recovery, the trend of less spending could persist.

In another recent study, Cutler and his colleagues linked about one-third of the reduction in growth of health spending to the recession from 2007 to 2009. But they weren’t able to explain another 55 percent of the reduction in growth.

If the pattern of current national expenditures holds, it might mean savings of $770 billion on Medicare spending for the government over the next decade, Cutler has said.

He has also suggested that the passage of the Affordable Care Act may have persuaded healthcare providers to become more efficient and to clamp down on costly problems like in-hospital infections.

How does the health spending growth rate compare to overall economic growth?

Even though the slowdown in medical costs appears to have been dramatic, with an increase of 4 percent by 2009, that still accounts for about 17.6 percent of the U.S. economy, according to Medical News Today. A year before, health-care spending accounted for about 16.6 percent of the economy, which would indicate that the spending growth is still outpacing overall economic growth.

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