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Home Publications Blogs Beat the Press The Future of Health Care Costs: What Does History Tell Us?

The Future of Health Care Costs: What Does History Tell Us?

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Tuesday, 22 April 2014 20:30

Eduardo Porter has an interesting column reporting the assessment of various experts on the prospective path of health care costs. Near the beginning he quotes a NYT reporter:

"Changes in the way doctors and hospitals are paid — how much and by whom — have begun to curb the steady rise of health care costs in the New York region, ... Costs are still going up faster than overall inflation, but the annual rate of increase is the lowest in 21 years."

Porter then goes on to tell us that the quote appeared in a column written by a long retired colleague in 1993.

Of course any hopes in 1993 that health care costs would be well-contained over the next two decades were mistaken, but things have turned out better than expected. A set of cost projections from the Health Care Financing Administration (the forerunner of the Centers for Medicare and Medicaid Services [CMS]) tells us the consensus view at the time.

These projections showed health care costing 19.8 percent of GDP in 2015 and 26.2 percent in 2040. The most recent projections from CMS show health care spending at 18.4 percent of GDP in 2015 and rising to 19.9 percent of GDP in 2022. The difference between the 1993 projection for 2015 and the most recent projection would come to more than $250 billion in 2015. If we assume a linear growth path between 2015 and 2040, the 1993 projections would imply that health care spending would be 21.6 percent of GDP in 2022, 1.7 percentage points higher than the most recent projections.

This difference is even more striking when considering the size of the projected changes over this period. Health care costs were already close to 13 percent of GDP in 1993. This means that the projection for 2015 implied an increase in costs of 6.8 percentage points. The most recent projections indicate the growth will be just 5.4 percentage points, a difference of more than 20 percent. 

In short, the history of the last two decades indicates there was some basis for optimism about the future course of health care spending in 1993. It has risen substantially less rapidly than had been predicted at the time. For what it's worth, life expectancy has actually increased somewhat more rapidly than projected, indicating that the lower than projected spending did not lead to worse health outcomes. On the other hand, the gains in life expectancy have not been evenly shared with those at the top end of the income distribution getting most of the increase and those at the bottom seeing little or no gain. 

 

Note: A number was corrected and material added. 

Comments (6)Add Comment
Compared to what?
written by rbitset, April 22, 2014 10:24
What was the 2015 GDP projection in 1993?
a related aside ...
written by squeezed turnip, April 22, 2014 10:47
Canada's middle-class surpasses the US middle-class in wealth

Thanks, "conservatives" and VSPs, who silently presided over 3.5 decades of the largest wealth grab in history. Congratulations to the Canadians, for having some foresight and political will.
...
written by Scott, April 23, 2014 6:40
Any time health care costs are mentioned, we need to make sure we know what is driving the increases/decreases in absolute costs or inflation rates.

If costs are going up slowly because doctors, hospitals and drug companies are controlling costs and passing the savings onto consumers than it is good for the economy. On the other hand, if costs are decreasing because more people can't afford health care and therefore go without it, then it's a major negative.
ya hit the nail on the head scott
written by pete, April 23, 2014 2:45
The goal is to limit the use of "unnecessary" procedures, and institute long lines for health care. This and increased copays and deductibles should drive down the use of health care. The sad reality is that insurance does not equal care. As Oregon showed, using county hospitals and free clinics was equal in health care outcomes to providing insurance.

US health care spending rose because 1) it was tax deductable for employers, and 2) health has a high positive income elasticity. As US growth outpaced Europe, there was an increase usage of health care. Our extremely heterogenous population leads to some misleading findings that we overspend relative to European health outcomes.
Nice Save
written by Larry Signor, April 23, 2014 2:48
You almost had me going, Dean. Nice save.

"For what it's worth, life expectancy has actually increased somewhat more rapidly than projected...the gains in life expectancy have not been evenly shared with those at the top end of the income distribution getting most of the increase and those at the bottom seeing little or no gain. "
...
written by Smith, May 02, 2014 6:31
Health care costs are increasing rapidly. As we know that the expenses of the people are increasing and in this busy schedule, no one gets time to take care of the health. So improper diet can reduce your health. But this can increase your hospital bills, so everyone must take care of the health.
http://healthblog.world.edu/ur...ight-time/

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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