Health Care Spending Slowdown Mainly Attributed to Economic Factors

The growth rate of annual health expenditures decreased considerably from the 2000-2007 time period to the 2008-2011 time period and 70% of this slowdown can be credited to economic factors, according to results of a study recently published in Health Affairs.

“We were trying to get a sense of what role the economic downturn of 2008 plays in this decline in the rate of growth of health spending,” Craig Garthwaite, a co-author of the study, told O&P Business News.

While similar studies have been conducting by analyzing the United States’ gross domestic product, the study’s authors believe the gross domestic product (GDP) is not the most reliable measure to predict health spending. They stated, “The difference between GDP growth and other outcomes such as employment and median income following a slowdown is a relatively new phenomenon described as a ‘jobless recovery.’ For these reasons, it is important to consider alternative macroeconomic measures to GDP that could be predictive of health spending.”

Local and national health care trends

Researchers compared spending trends in metropolitan areas that experienced sharp economic decline with similar areas that showed little to no decline. The researchers examined the period of 2007-2011 using data from the Health Care Cost Institute (HCCI), an independent, nonprofit entity which obtains insurance claims data from Aetna, Humana and United Healthcare. Geographic regions were separated by HCCI data into 366 Core Based Statistical Areas (CBSAs).

They also examined a sample of nearly 47 million health care enrollees. In 2011, according to the study, 64% of all Americans had private insurance and about half of all health expenditures of insured people were paid by private insurance.

“In addition to aggregate health spending, the data contained monthly enrollment and disenrollment figures, rudimentary plan characteristics and geographic market identifiers,” the authors noted in the study.

The study was restricted to people 26 years to 64 years old with one of the following types of employee-sponsored, non-group health insurance: exclusive provider organizations, HMOs, point-of-service plans or preferred provider organizations. People who resided outside a CBSA, who had gaps in insurance coverage or who had inconsistencies in the data were excluded from the study.

Researchers compared the HCCI data with national statistics showing a sudden decrease in health care spending in 2008, which remained depressed until 2011. The study results mirrored the pattern found in national estimates.

“Given the substantial slowdown in spending by the insured people in our sample, it is clear that insurance losses among people who lost employment cannot be the only explanation for the overall slowdown in health spending,” the authors stated in the study.

Study results showed that annual growth in health spending for the sample of insured patients in the period of 2009-2011 was 2.6% below the growth of the 2007-2009 period. Additionally, there was a statistically significant 0.84% decline in mean health spending per patient in the 2007-2011 period. The authors stated, “Based on the overall decline in employment, we calculate that if the economic slowdown had not occurred, annual growth in aggregate health expenditures from 2009 to 2011 among our sample would have been approximately 1.8 percentage points higher.”

Employment to population ratio

The researchers also examined the local impact of the recession using employment data from the Local Area Unemployment Statistics of the Bureau of Labor Statistics along with census estimates to create an employment-to-population ratio for each CBSA. According to the study, the period of January 2008 to January 2010 “represents the change from the approximate peak to the approximate trough in the employment-to-population ratio.”


The researchers used the employment-to-population ratio as the measure of economic impact on the slowdown because the ratio can capture the direct effect of the slowdown on earnings, is correlated with changes in housing wealth and can be reliably measured at the CBSA level, the study stated.

By measuring the absolute change in employment-to-population ratio during this time period, the researchers found “there was substantial regional variation in the impact of the economic slowdown on employment,” according to the study results.

“What we show is that the regional variation in the recession – the change in the employment-to-population ratio in each city – can explain approximately 70% of the decline in the rate of growth,” Garthwaite said.

He added, “We are not finding that the decline in health spending is coming because individuals are losing insurance and therefore not purchasing care. We found that individuals who retained insurance don’t spend much on health services.”

The researchers found that wealth – permanent and current income – affects health service spending in four significant ways: (1) It can directly affect demand for health services because nearly everyone pays for some health services out of pocket. (2) It can affect spending through the choice of insurance provided and chosen. (3) It can affect health status because lower wealth can cause poorer health but poorer health causes increased health spending. (4) It can affect the rate of adoption of and change in available technology for patients.

“Sort of an interesting finding for both practitioners and patients is the idea that people – even though they retain insurance – their income and their idea of what their future income [will be] a strong determinant in their spending on health services,” Garthwaite said.

Health care spending predictions

Garthwaite said that, absent other factors, the study’s results are suggestive of an increase in the growth of health spending in the future.

“Going forward, we want to see exactly what happens to health spending. What we have marked out is that during the recession, the recession was responsible for the majority of the decline in health spending,” he said. “If we don’t see health spending rise going forward, then it means that other things have changed in the economy or the health care system, and I think that is going to be important to realize [in order to] benchmark the benefits of the recent changes we are seeing as a result of the Affordable Care Act (ACA).”

According to Garthwaite, researchers are unsure at what point in time the effects of the ACA on health care spending will be measurable.

“It is going to be a matter of several years before we get a handle on that,” he said.

Garthwaite said it is too soon to tell the positive or negative (or any) impact of the ACA’s on future health care spending.

“Our findings do not automatically imply that spending will increase at a faster pace as the economy recovers, because the ACA (or other new factors) may offset future growth,” the study concludes. “That being said, our results indicate that future economic growth will cause health spending to be higher than it would have been if the economy remained stagnant.” — by Amanda Alexander

For more information:
Dranove D. Health spending slowdown is mostly due to economic factors, not structural change in the health care sector. Health Affairs. 2014;doi:10.1377/hlthaff.2013.1416.

Disclosure: The researchers have no relevant financial disclosures.

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