Healthcare Business News

Ahead of new estimates, economists say slow health spending growth for 2012 likely

By Melanie Evans
Posted: January 3, 2014 - 1:30 pm ET

An estimate of 3.9% growth in health spending for 2012, where it has hovered since 2009, would not be a surprise, say economists interviewed before the latest look at national health spending is released next week by the CMS.

Last October's preliminary CMS projections put 2012 health spending growth at 3.9%, a fourth consecutive year of historically slow growth. The slowdown followed the Great Recession, when consumers generally cut spending of all kinds.

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The economy is widely considered a factor, though the degree to which the recession and weak recovery continue to drag on health spending is hotly debated, splitting economists and policymakers who see the economy as the prime culprit and those who say technology or health reform are the main drivers.

That divide was underscored by economists who, despite agreement that it would remain tepid, cited various reasons for continued slow spending growth in 2012.

Economist Uwe Reinhardt, a professor at Princeton University, said health spending remains slow in part because the large number of unemployed workers has left those with jobs afraid to lose them by taking time off work for medical reasons.

U.S. unemployment began 2012 at 8.3% and gradually declined to 7.8%, down from 10% in October 2009 but still well above 5% at the start of the recession.

Reinhardt also cited the growth in private insurance with higher deductibles for the ongoing slowdown. Indeed, preliminary 2012 projections released in October credited weaker demand for medical care to rising out-of-pocket costs. He expects to see 2012 growth similar to that of the prior year, Reinhardt said.

Charles Roehrig, director of the Altarum Institute's Center for Sustainable Health Spending, also cited the economy for the continued slowdown, along with slower spending for prescription drugs. He wonders if this week's update confirms a 0.8% drop in retail spending for prescription drugs reported in preliminary figures, Roehrig said. The drop is largely attributable to new generics for blockbuster brand name drugs that lost patent protection. He said health spending growth near 3.9% is likely, though he declined to predict where spending may land.

Mark Pauly, a professor of business economics, public policy and healthcare management, at the University of Pennsylvania, agreed that the slowdown in pharmaceutical spending contributed to overall slow spending growth. But questions about health reform are also having an impact, he posits. “This is a period where people were very uncertain about what health reform will mean,” he said, and that ambiguity can dampen investment.

Pauly gave less credit to the economy, which had begun to recover in 2012. “The impact was more psychological than substantive," he said. He also sees continued hospital hiring through the recession as an indicator of future health spending growth.

Follow Melanie Evans on Twitter: @MHmevans

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