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Is This Time Different? The Slowdown in Healthcare Spending

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  • Amitabh Chandra
  • Jonathan Holmes
  • Jonathan Skinner

Abstract

Why have health care costs moderated in the last decade? Some have suggested the Great Recession alone was the cause, but health expenditure growth in the depths of the recession was nearly identical to growth prior to the recession. Nor can the Affordable Care Act (ACA) can take credit, since the slowdown began prior to its implementation. Instead, we identify three primary causes of the slowdown: the rise in high-deductible insurance plans, state-level efforts to control Medicaid costs, and a general slowdown in the diffusion of new technology, particularly in the Medicare population. A more difficult question is: Will this slowdown continue? Here we are more pessimistic, and not entirely because a similar (and temporary) slowdown occurred in the early 1990s. The primary determinant of long-term growth is the continued development of expensive technology, and there is little evidence of a permanent slowdown in the technology pipeline. Proton beam accelerators are on target to double between 2010 and 2014, while the market for heart-assist devices (costing more than $300,000) is projected to grow rapidly. Accountable care organizations (ACOs) and emboldened insurance companies may yet stifle health care cost growth, but our best estimate over the next two decades is that health care costs will grow at GDP plus 1.2 percent; lower than previous estimates but still on track to cause serious fiscal pain for taxpayers and workers who bear the costs of higher premiums.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19700.

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Date of creation: Dec 2013
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Publication status: published as Amitabh Chandra & Jonathan Holmes & Jonathan Skinner, 2013. "Is This Time Different? The Slowdown in Healthcare Spending," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 261-323.
Handle: RePEc:nbr:nberwo:19700

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  1. Katherine Baicker & Dana Goldman, 2011. "Patient Cost-Sharing and Healthcare Spending Growth," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 25(2), pages 47-68, Spring.
  2. Daron Acemoglu & Amy Finkelstein & Matthew J. Notowidigdo, 2013. "Income and Health Spending: Evidence from Oil Price Shocks," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1079-1095, October.
  3. Jeffrey Clemens, 2013. "The Effect of U.S. Health Insurance Expansions on Medical Innovation," NBER Working Papers 19761, National Bureau of Economic Research, Inc.
  4. Baicker, Katherine & Chernew, Michael E. & Robbins, Jacob A., 2013. "The spillover effects of Medicare managed care: Medicare Advantage and hospital utilization," Journal of Health Economics, Elsevier, Elsevier, vol. 32(6), pages 1289-1300.
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  7. Katherine Baicker & Michael Chernew & Jacob Robbins, 2013. "The Spillover Effects of Medicare Managed Care: Medicare Advantage and Hospital Utilization," NBER Working Papers 19070, National Bureau of Economic Research, Inc.
  8. Mohamad M. Al-Ississ & Nolan H. Miller, 2013. "What Does Health Reform Mean for the Health Care Industry? Evidence from the Massachusetts Special Senate Election," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 5(3), pages 1-29, August.
  9. Glied, Sherry & Zivin, Joshua Graff, 2002. "How do doctors behave when some (but not all) of their patients are in managed care?," Journal of Health Economics, Elsevier, Elsevier, vol. 21(2), pages 337-353, March.
  10. Melinda Buntin & Michael Levine, 2013. "Why Has Growth in Spending for Fee-for-Service Medicare Slowed?: Working Paper 2013-06," Working Papers, Congressional Budget Office 44513, Congressional Budget Office.
  11. Annamaria Lusardi & Daniel J. Schneider & Peter Tufano, 2010. "The economic crisis and medical care usage," NBER Working Papers 15843, National Bureau of Economic Research, Inc.
  12. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2012. "Moral hazard in health insurance: How important is forward looking behavior?," Discussion Papers, Stanford Institute for Economic Policy Research 11-007, Stanford Institute for Economic Policy Research.
  13. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
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Cited by:
  1. Eric Nauenberg, 2014. "Changing Healthcare Capital-To-Labor Ratios: Evidence and Implications for Bending the Cost Curve in Canada and Beyond," Working Papers 140002, Canadian Centre for Health Economics, revised Jul 2014.

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