Here's something to cheer this holiday season: Healthcare spending last year grew at its slowest rate since 2013. The Great Moderation in healthcare spending, which began early in this decade, continues.
There was good news almost everywhere you looked in the latest report from CMS actuaries, which showed 3.9% growth, down from 4.8% the previous year. Prescription drug spending rose just 0.4%, a second straight year of below-average increases after drugmakers' price-gouging spree of 2014-15.
Spending growth at physician offices and hospitals slowed to a rate slightly above the overall national average. Spending on nursing homes and other long-term-care facilities increased at half the national average.
Even patients' out-of-pocket expenses posted just a 2.6% annual growth rate. Unfortunately, any increase can be tough to manage for patients with low and moderate incomes. It's no consolation to be told that your wages are finally rising after nearly a decade of economic recovery when most of that increase has to go to pay for growing out-of-pocket healthcare costs.
There was one troubling signal in the report. In analyzing the factor that contributed the most to the overall increase, the actuaries noted that the share attributable to age and sex had remained constant while per capita use of services declined. Medical prices, on the other hand, ticked up.
Providers should take note. If they don't, the antitrust authorities will. Raising prices to make up for lost volume is not a viable long-term strategy.
Since I'm neck deep in the health economics weeds this week, it's worth examining what might account for that slower growth in service use, which economists call intensity. Hospital use, whether measured by per capita inpatient admissions or lengths of stay, continues its long-term decline.
Physicians, an increasing share of whom now find themselves employed, are under intense pressure from payers and their systems to hold the line on unnecessary utilization. Campaigns by some professional societies (like “Choosing Wisely” from the American Board of Internal Medicine Foundation) may also be changing behavior.
For decades, demographers and economists have predicted the gray tsunami of aging baby boomers would inevitably push healthcare spending over 20% of GDP. But a new paper from Harvard's Maryaline Catillon and David Cutler and Temple's Thomas Getzen, who reviewed healthcare spending and longevity over the past 200 years, highlights some recent trends suggesting the future may not be as bleak and hard to manage as predicted.
They note spending as a share of GDP didn't take off until shortly after the advent of Medicare and Medicaid in 1965. At the time, the nation spent about three times as much on the elderly as it did on people under 65. Over the next 20 years, CMS spending soared and the ratio rose to more than 5-to-1.
But during the next three decades, the difference gradually came down and, by 2012, was back at 3.3-to-1. Given that Medicare spending has grown more slowly than private insurance spending over the past half-decade, it's probably even narrower in the past five years.
That increased spending wasn't for naught. Most of the gains in longevity in recent decades have come from extending the lives of the elderly, the paper noted, a contrast to increased longevity in the 20th century, which came largely from reducing premature deaths from infectious and heart diseases.
Only half of recent gains can be attributed to medical interventions. But in a surprising finding, the cost of those interventions relative to their medical gains is actually coming down. The cost of extending life by one year fell by nearly 20% between the 1985-95 period and the 2005-10 period, the authors calculated.
An explosion in pricey new drug therapies for marginal gains in longevity could reverse that trend. But the good news, the paper suggests, is that price-gouging is a political choice—not one made inevitable by an aging society.
