Is That the Sound of a Bending Cost Curve?

May 21st, 2012 at 11:39 pm

I’ve been working on a health care presentation that I’ll post tomorrow, but first I wanted to note this piece in today’s Wapo on recent trends in health care spending for persons under 65 with employer-sponsored insurance (ESI).  The numbers are notable because they’re derived from a very large database provided by the insurers who carry the private policies for the employers—such data have historically been hard to come by.

One finding that caught my eye was the slowing of health care spending in 2010.  After growing about 6% per year in 2008 and 2009, health spending per insured person on ESI rose 3.3% in 2010 (see table 1 here).

Readers may recall this recent post wherein I wondered if a report on this slowing health spending phenomenon was cyclical or structural.  That is, are people spending less because their incomes are down in the recession, implying growth rates will eventually bounce back?  Or is some more fundamental change underway “bending the cost curve” in ways that will generate lasting savings?

I hypothesized mostly the former.  I don’t yet see the kinds of structural changes in place that would alter incentives of patients, providers, and insurers, though let’s hope such changes are forthcoming through the Affordable Care Act (more on that tomorrow).  And, in fact, utilization is down, not price.

The paper from which the WaPo data are drawn favors the cyclical explanation as well, though they note a price elasticity is also in play:

It is likely that much of the dip in utilization is connected to the recent recession and sluggish recovery. Faced with a loss of income, wealth, or job security, patients could be putting off non-urgent care.

But many analysts argue the drop-off is too significant to be accounted for by economic factors alone. And Monday’s report also fleshed out details of another possible explanation: The rising price patients must pay for care.

So we’ve got recession-induced falling incomes bumping into faster growing prices for health services.  Add in increased cost-shifting from employers to workers and you’ve got a pretty good recipe for lower overall spending.

We won’t be able to answer the cyclical/structural question until incomes recover, but in the meantime, here’s another good question.  If health care spending is truly slowing in a lasting way, that would provide extremely valuable relief from the relentless costs pressure of recent decades.  The implications for the national economy and our fiscal challenge would be hugely positive.

But we’ll have to dig deeper to see which patients are foregoing care, and why.  If financing efficiencies and better aligned incentives are at work, great.  If people who need care can’t afford it, not so good.

 

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7 comments in reply to "Is That the Sound of a Bending Cost Curve?"

  1. Susie Madrak says:

    I know many, many people in their fifties who have insurance and can’t afford to actually use it, if that answers your question.


  2. David says:

    Here’s a very relevant article:

    http://blog.academyhealth.org/hccireport/

    providing evidence that our health cost problems are mostly due to the much higher prices that providers in the US charge compared to other developed countries.


    • Christiaan says:

      I don’t think this is relevant to this discussion, as this compares US health care to other countries, while what we’re talking about here is US health care now compared to US health care before 2010. The extra costs relative to other countries were true both before and after 2010, so they have no bearing on the slowdown of spending.


  3. Christiaan says:

    Both likely explanation – less care because of lower incomes and because of higher prices – are bad news, and would lead to higher costs in the future because of delayed care (delayed care is typically significantly more expensive.) So if those are really the reasons, this will not be a structural adjustment, quite the opposite, it could point to a structural bending of the cost curve upwards in the future, because the higher costs of the coming delayed care may drive up prices even more, leading to costs spiraling upwards.


  4. dougfir says:

    I know I don’t visit the doctor as often as he would like precisely because he charges $195 for a routine visit. My insurance won’t pay any of it until I pay the $2000 deductible for the year. So unless we get hit with some catastrophic surgery or illness, the insurance (with it’s $300 per month premium) goes un-used.


  5. Kathleen Wright says:

    Thanks for the insight. I was a health policy analyst in a past life and continue to rant periodically on the health care provider monopoly. Bending that curve is our only hope for a variety of reasons that I highlight without the censorship of reason at times in the following piece…

    http://schoolsretooled.com/2011/10/17/health-economics-rant/

    Ironically, the Partners Healthcare team called a meeting with Gov Patrick a few days ago to warn that his pricing policy threatens to kill the Golden Goose.


  6. Susan Friedrichs says:

    I work for a small consulting firm. Over the years, more and more of the costs have shifted to us, so that our insurance is basically catastrophic insurance. In addition, because of the slow down of the economy, our company faced some pretty lean times. We have been on reduced salaries for the last two years.
    I will be going for my annual preventative care visit -Thanks Obama Care- and hope I stay healthy the rest of the year.


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