Economic downturn largely responsible for slowed health spending

The U.S. is experiencing the slowest growth in health spending in five decades, which has generated considerable debate about what has led to the slowing.  Analysts have pointed to the downturn in the economy and to structural changes to the health care system (e.g., higher patient cost sharing in private insurance) or legislative actions (e.g., Medicare payment reductions in the Affordable Care Act, budget sequester). A recent study from researchers at Northwestern University adds to the discussion, finding that the economic downturn was responsible for about 70% of reduced health care spending among the privately insured. (As the study utilized claims data from private insurers, the results may not be generalized to the U.S. population.)

“Our findings may be summarized as follows…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. This implies that the economic slowdown explained approximately 70 percent of the reduction in health care spending for our sample.”

Dranove and colleagues, Health Affairs

Using data on health spending for private insurance for 2007 through 2011, the study looked at the correlation between the change in health spending and the change in employment in local areas.  The authors use the employment to population ratio in an area to measure the economic impact of the economic slowdown.

“We compared trends in spending in metropolitan areas that experienced sharp economic declines and trends in spending in areas that saw little if any decline. Thus, we were able to estimate the effect of the slowdown on spending based on what actually occurred during the slowdown, instead of using projections from past macroeconomic shocks.”

Dranove and colleagues, Health Affairs

The researchers observed that the areas hardest-hit by the economic downturn saw the slowest growth in health spending.  They used regression analysis to rule out the impact of prior health spending trends, and compared the 2009 to 2011 growth rates in each area to the pre-slowdown period (2007 to 2009) to conclude that the majority (70%) of the recent slowdown in health spending among privately insured individuals and families can be explained by economic factors. The authors note that future economic growth is likely to lead to higher health spending, although factors such as the ACA may offset that growth.