Healthcare spending growth will accelerate, study contends

While the aftermath of the Great Recession lingers, economists disagree over what credit to give the tepid economy for continued sluggish healthcare spending.

Researchers from Northwestern University are the latest to weigh in, predicting a pending bounce back for healthcare spending once the economy picks up more steam. They join heavyweight economists at public agencies, other universities, think tanks and consulting firms in an ongoing debate over what put the brakes on health spending and, more importantly, how long the brakes will stay on.

Not long, as economic recovery continues and intensifies, contends David Dranove, Craig Garthwaite and Christopher Ody, writing in the journal Health Affairs. The economy accounted for 70% of the recent drag on health spending growth, according to their analysis. “This suggests that the recent decline is not primarily the result of structural change in the health sector or of components of the Affordable Care Act and that—absent other change in the healthcare system—an economic recovery will result in increased health spending,” they wrote.

That's bad news for public agencies and consumers, which have enjoyed budget relief because of record-slow health spending growth.

In the last few years, estimates of the economy's role in the slowdown have varied widely, even as the trend persists.

Harvard University researchers ascribe one-third of recent sluggish healthcare growth to the economy. Instead, fewer costly technologies, more high-deductible health plans and greater efficiency likely accounted for the majority of the slowdown, they said.

Economists with the Altarum Institute and Kaiser Family Foundation, meanwhile, gave the recession and weak recovery far more credit—75%—for the nation's uncharacteristically modest health spending gains. “If the economy recovers as expected, the annual growth rate in health spending will increase by more than 3 percentage points over the next several years, to more than 7%, from the current low level of about 4%,” wrote Kaiser and Altarum officials in the Washington Post recently.

Dranove and his colleagues analyzed records for 47 million enrollees with employer-sponsored coverage between 2007 and 2011. The data, compiled by the Health Care Cost Institute, included spending, health plan characteristics and geographic data on enrollees. Researchers analyzed health spending and the ratio of employed versus unemployed working-age adults across geographic regions. And as employment dropped, as was the case in Las Vegas and Birmingham, Ala., so did health spending, they wrote.

“Insured people residing in areas that were hardest hit by the economic slowdown experienced the smallest increase in health spending,” the journal article said.

Mean health spending dropped 0.84% for each percentage point drop in the employment ratio, they said.

The recession's squeeze on income and wealth may have curbed health spending as anxious households chose to spend less on medical care or health insurance, the authors wrote.

Follow Melanie Evans on Twitter: @MHmevans