Has the Healthcare Money Monster Lost Its Appetite?

Deliberations about the U.S. debt dominate the news cycle, but what creates the greatest fear and dread for legislators and policy makers is the unrelenting growth of healthcare costs. For decades, healthcare costs have increased, but recent data shows a slowdown in the trend. In 2009 the rate of healthcare spending slowed and has continued to slow through 2011. The leaves us wondering if this is an anomaly due to the 2008-2009 recession or has the healthcare money monster lost some of its appetite.

David Brooks wrote in a New York Times editorial about healthcare spending, noting that Medicare spending will nearly double over the next decade. This increase in Medicare expenditures is expected to be the essential factor driving all federal spending over the next few decades, and Brooks states that it will enlarge federal debt to about 250% of G.D.P. in 30 years.

Brooks also points out that a recent Quinnipiac poll found that most Americans, by a large margin of 70 to 25%, value healthcare and do not want to see any cuts made to Medicare. So finding the political will to make changes to this large healthcare program appears to be next to impossible.

Perhaps these predictions will not turn out to be so dire. After all, during the economic downturn in 2009 and 2010, healthcare costs grew at their slowest rate in decades. The Centers for Medicare and Medicaid Services estimated that healthcare costs grew more slowly than the rest of the economy in 2011 for the first time in more than 10 years, and for the three years 2009-2011 grew at only 3.9%. Health policy analysts are applauding this news.

This health spending slowdown may be more lasting. Harvard University’s David Cutler makes the point that three systemic changes will continue beyond the recession and these are the primary causes for the slower growth rate. The first is Obamacare’s lower reimbursement rates that will permanently slow hospital spending. The second is slower acceptance of costly technologies with unproven benefits. And the third is the growth of consumer-driven healthcare plans.

Click here to read the Washington Post article on cost growth and here to read the Brooks editorial in the New York Times.

Money image © Pen Waggener / Wikimedia