Health Spending Growth: Still Facing A Triangle Of Painful Choices

In the four years immediately following the recession (2010 through 2013), health spending grew at a historically low average annual rate of 3.6 percent, about the same as gross domestic product (GDP). This era was interrupted in 2014 with the advent of expanded coverage under the Affordable Care Act (ACA)—the newly insured used more care than before—and the introduction of expensive new drugs for hepatitis C. Health spending jumped to 5.3 percent growth in 2014 and an estimated 5.8 percent in 2015.

Coverage expansion has begun to level off in 2016 and spending on hepatitis C drugs is on the decline. Thus, it is not surprising that preliminary estimates show health spending growth slowing to 4.7 percent for the first quarter of 2016. It is reasonable to expect health spending growth for all of 2016 to fall somewhere between 4 and 5 percent, with the possibility of approaching 4 percent growth in 2017 if economy-wide inflation remains low and the growth in spending on prescription drugs comes back to earth.

This would put health spending on a path close to GDP+0 until the next recession, which is due to arrive within the next few years. (The current expansion is already the fourth longest in U.S. history.) Recessions lower GDP growth much more than they lower health spending growth and thus raise the average differential between GDP growth and health spending growth above what it is between recessions. While there is much uncertainty, the long-term path of health spending is likely higher than GDP+0 but (hopefully) less than GDP+1.

This would be historically slow growth — but is it sustainable?

– Health Affairs

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