Good News Inside the Health Spending Numbers

Inside the continuing slowdown in the growth in health spending is evidence that the American health care system may be changing in ways that could make it more affordable in the years to come.

As my colleague Robert Pear reported, health spending in 2013 grew at the lowest rate since government officials started tracking it - back in 1960. Taken alone, that fact might not be meaningful, but 2013 is the fourth consecutive year that health spending growth has kept pace with the growth in the overall domestic economy, suggesting something more durable than random. The slowdown in health spending growth began in 2002 and has become more pronounced in recent years.

And there are lots of good signs about how that spending is declining. The prices of medical services are growing more slowly than overall inflation, and the volume of hospitalizations has gone down. Spending by the federal Medicare program, private health insurance and people's out-of-pocket expenditures all declined, suggesting that the savings were systemwide and not due to changes in just one kind of insurance.

Some things bucked the downward trend, of course: The federal-state Medicaid program grew faster in 2013 than it did the year before, driven mostly by an increase in enrollment. And spending on prescription drugs, which has been low for years, started to turn up again.

Optimists about the spending slowdown argue that the recent low growth is a sign that health care is becoming more efficient and safe. The new report shows some trends that are consistent with that thesis. The reduction in hospital spending suggests that more people may be getting care in the doctor's office or at home before they get sick enough to need hospitalization. The actuaries also noted a reduction in a particular kind of hospitalization known as a readmission; that's when a patient leaves the hospital only to return within a month.

This week, federal officials reported that the number of serious medical errors in the country had declined by 17 percent between 2010 and 2013, representing a savings of about $12 billion in health spending. That, alone, is not enough to explain much of the slowdown, but it's the kind of good sign that suggests the presence of changes in how doctors and hospitals are delivering care to make it both of higher quality and less expensive.

There's another possible explanation for the low growth, however, and it's one that the federal officials stressed: It could be merely the result of a weak economy after a recession.

Change in health spending

Change in health spending

Change in health spending

There are several academic studies that attribute most of the slow spending we've seen recently to the recession. In the recession years, the officials noted, people used far fewer health care services. In the years after, price growth slowed as contracts were renegotiated. The actuaries pointed to recent historical data to buttress their point - if you look at what happened in the periods after the recessions of the early 1990s and the early 2000s, health spending growth and overall economic growth also came together.

'The pattern observed in recent years is not unique and is consistent with historical patterns,' said Anne Martin, an economist at the Centers for Medicare & Medicaid Services, the government agency that made the calculations.

If you look back further than the 1990s, however, that pattern hasn't always held. For much of the last 54 years, health spending has simply grown faster than the economy, regardless of the business cycle. There's really only one period in the past when health spending growth stayed as slow as what we're seeing now for several years. That was in the late 1990s, when the health care system was changing in significant ways through the shift to managed care for Americans with workplace insurance and big cuts to Medicare spending imposed by Congress.

In some ways, we are in a similar period of upheaval. The Affordable Care Act has led many hospitals and health insurers to rethink their business models. It also made reductions to Medicare spending on hospitals and private health plans for seniors. Recent years have also seen the growth of high-deductible health insurance plans for workers, which mean lower insurance premiums, but higher out-of-pocket costs for people who seek health care. In the 1990s, a consumer backlash and effective lobbying reversed many of the changes that led to that period's slowdown. We still don't know if similar resistance will reverse the more recent changes.

No matter what the cause of the recent slowdown, next year's report will look very different. Because of the Affordable Care Act, about 10 million more Americans obtained health insurance this year, meaning that overall spending on health insurance and health care jumped. If enrollment in the law's new programs continues to grow, health spending is likely to do the same in the years to come, whatever the changes to health care delivery. The growth in health spending will be more important than ever then, but the national spending numbers will be a less useful way to track whether care is changing.