06Mar2012

Latest national healthcare expenditures

by Ian Duncan, University of California – Santa Barbara

The recent release of National Healthcare Expenditure data for 2010 shows a very slight uptick.  What is more interesting, though, is the long-term trend. I have summarized the annual trend in per capita healthcare expenditures below.

         Year

PMPY

Trend

1997

 $        4,169

1998

           4,367

4.7%

1999

           4,601

5.4%

2000

           4,878

6.0%

2001

           5,241

7.4%

2002

           5,687

8.5%

2003

           6,114

7.5%

2004

           6,488

6.1%

2005

           6,868

5.9%

2006

           7,251

5.6%

2007

           7,628

5.2%

2008

           7,911

3.7%

2009

           8,149

3.0%

2010

           8,402

3.1%

 

While the absolute level of expenditures is high (as one would expect in a country with the highest per capita national income in the world) the trend has been uniformly downward since 2002.   This includes the year 2006 which saw the introduction of Medicare Part D, the largest entitlement to have been enacted (to that time) since Medicare.   These numbers of course pre-date the passage of ACA, the early effects of which threaten to reverse these favorable trends.

A recent article in Health Affairs “Growth in US health spending remained slow in 2010; health share of Gross Domestic Product was unchanged from 2009” by Martin et al (Health Affairs, 31(2) February 2012) mentions the effect of economic conditions as a contributor to the modest trends.  This may indeed be true, but does not account for the long-term favorable trend observed since the early 2000s.

Instead, these numbers suggest to me that the market was responding to the rising costs of the early 2000s by introducing innovative solutions to control cost increases, to the point where the annual increase was 3%, a level considered to be a “normal” overall rate of inflation.  Actuaries played an important role in predicting and managing cost increases and developing risk assessment and risk transfer mechanisms that contributed to the favorable trend.

With ACA the government assumes the role of directing the market.  It is hard to imagine the new regime being more successful in controlling expenditures (without direct intervention in pricing) than the market has been in the last few years.

What do you think?

UPDATE – Added March 15: As a follow-up to the recent posting about the declining trend in per capita healthcare costs, a recent news item is a harbinger of changes to come:

Published March 14, 2012
The Congressional Budget Office has extended its cost estimates for President Obama’s health care law out to 2022, taking in more years of full implementation, and showing that the bill is substantially more expensive — twice as much as the original $900 billion price tag.

In a largely overlooked segment of the CBO’s update to the budget outlook released Tuesday, the independent arm of Congress found that the bill will cost $1.76 trillion between now and 2022.

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Discussion

2 responses to "Latest national healthcare expenditures"

  • Brian Sala says:

    I am not sure that you can call this a “long-term trend” for decline. More like a three-year bulge in cost growth 2001-03 surrounded by a lot of sameness on either side. The 2008-10 data are interesting, but not exactly definitive about anything.

    The real questions have to do with the whys. Fertility has been declining since 2007 — perhaps the reduction in pregnancies and deliveries (expensive medical activities) explains part of the last three years. As the economy improves, wouldn’t fertility be expected to rebound?

    Additionally, the numbers of uninsured grew sharply during the so-called “Great Recession,” and CDC data indicate that the proportion of the uninsured who delayed or did not seek medical care due to costs has grown sharply in recent years. That could be another part of the story.

  • Kevin Ahlgrim says:

    Careful – the general inflation trend has also been down over the same period. Will ACA be blamed for growth in GENERAL inflation if the “trend” reverses?

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