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U.S. Health Spending To Consume Vastly Greater Share Of Personal Income If Nation Doesn't Slow The Rate Of Growth, Analysis Shows

Health Affairs Thematic Issue Highlights Rapid Spending Growth In Health Care And Explores What Might Work To Slow It

Bethesda, MD -- If the growth rate in U.S. health care spending continues at current levels, a vastly greater share of personal income and economic resources will be devoted to health care, according to a new analysis in the September/October issue of Health Affairs. And even if that growth rate could be slowed sharply -- to a pace of just 1 percentage point faster than annual per capita growth in the gross domestic product -- more than half of any increase in personal income would still go to health care over the next 75 years. http://content.healthaffairs.org/cgi/content/abstract/28/5/1253  

In an update of work published in 2003, Harvard researchers Michael Chernew and David Cutler, along with the University of Michigan's Richard Hirth, project health spending in relation to economic growth over the period 2007 to 2083. They find that if health spending grows about two percentage points faster than real per capita GDP, a staggering 119 percent of the real increase in per capita income would be devoted to health spending. This means, in effect, that the entire net increase in income over the period would go to consumption of health care resources, as well as a portion of what currently goes to other goods and services.


On the other hand, if the nation were to accomplish a Herculean feat -- slowing the growth of health spending to just one percentage point faster than real per capita GDP -- 53.6 percent of real income growth would go to health care. That's "affordable," the authors argue -- although such an outcome would still pose critical challenges for the United States.


"These projections make the impact of health care spending more dire," the authors say. If the United States hopes to maintain a reasonable consumption of nonmedical goods and services, slowing the rate of health spending will be crucial.


Chernew says the analysis makes clear that policymakers face tough choices if they fail to bring health spending under control. To pay for health care under programs such as Medicaid, state governments with balanced budget requirements would have to cut back even further on essentials such as education or social services. Individual Americans would be devoting far more of their paychecks to health care and would be forced to cut most other items in the family budget.


Chernew's paper is one of a series in a thematic Health Affairs issue on bending the curve of rising health spending. The issue and launch activities are supported by grants from Aetna, the Aetna Foundation, and the Commonwealth Fund. http://content.healthaffairs.org/content/vol28/issue5/


Strategies To Control Spending Without Compromising Quality


Henry Aaron of the Brookings Institution and Paul Ginsburg of the Center for Studying Health System Change conclude that the evidence that U.S. health care spending is excessive is overwhelming. To lower health spending growth without lowering net "welfare" -- the well-being that people derive from consuming goods and services -- the authors maintain that the health care system must:


      Organize the delivery of care to promote efficient cooperation among the many providers and practitioners involved in delivering modern medical treatment. The current fee-for-service payment system works against efficiency, and provider payment reform has a critical role to play in promoting efficient and coordinated care delivery.

      Conduct costly research over many years to identify which procedures are effective at reasonable cost; develop protocols that enable providers to identify in advance patients whose expected benefits of treatment are low or negative; design incentives that encourage providers to act on these protocols; and educate patients about why such protocols should be sustained.

      Continue research to maintain medical innovations to help ensure that spending reductions remain beneficial over time. http://content.healthaffairs.org/cgi/content/abstract/28/5/1260


In a separate paper, economists Sheila Smith and Mark Freeland of the U.S. Centers for Medicare and Medicaid Services and Harvard economist Joseph Newhouse estimate that medical technology explains 27-48 percent of health spending growth since 1960. This is a smaller percentage than earlier estimates, some of which pegged the contribution of technology to health spending growth at two-thirds or more. Growth in aggregate income (GDP) also stands out as an important driver of health care cost growth, as does the generosity of insurance coverage. However, the researchers argue that over the longer term, insurance is not likely to exert as large a positive effect on spending as it has historically, partly because it already covers 86 percent of personal health care spending, up from 45 percent in 1960. The structure of insurance coverage is likely to develop in a way that will constrain costs relative to historical experience, leading to slower growth in the future. To constrain growth, changes to the nature of coverage must be made, they conclude. http://content.healthaffairs.org/cgi/content/abstract/28/5/1276


Other Highlights In This Issue


        A paper by John Agwunobi of Walmart and Paul London, an economic consultant, examines lessons from the retail industry to show how more intense competition based on improved supply-chain management and high-volume purchasing can reduce the costs of generic and brand-name drugs, medical supplies, over-the-counter remedies, and vision care. http://content.healthaffairs.org/cgi/content/abstract/28/5/1336


        The federal government estimates that health care fraud accounts for 3-10 percent of total health care spending -- between $75 billion and $250 billion in fiscal year 2009. Successful efforts to stop such abuses will require aggressive, innovative, and sustained attention to protect taxpayers and beneficiaries, writes Lewis Morris, chief counsel to the federal Health and Human Services Office of Inspector General. http://content.healthaffairs.org/cgi/content/abstract/28/5/1351


        An Aetna pilot program shows how it's possible to help those who have serious or advanced illnesses obtain hospice or palliative care -- if that is their choice. The care management program provided culturally sensitive, supportive information to help plan members make informed, timely choices about hospice and palliative services. Although increasing hospice care was not a goal of the program, in the sample population more members did choose hospice care than had been the case in previous years and among other groups of patients. Patient satisfaction increased, and the use of acute care, intensive care, and emergency services declined, write Randall Krakauer and colleagues at Aetna. http://content.healthaffairs.org/cgi/content/abstract/28/5/1357


        A paper describes the lessons from Maryland's hospital payment system in which all payers -- public and private -- pay the same rates and share equitably in the financing of hospital uncompensated care. Robert Murray, executive director of the Maryland Health Services Cost Review Commission, writes that had the state's "all-payer" rate-setting system for hospitals been adopted nationwide, it might have saved $1.8 trillion over three decades. The commission is implementing initiatives that will link hospital payment directly to outcomes (rates of hospital complications and readmissions) in 2009 and 2010. http://content.healthaffairs.org/cgi/content/abstract/28/5/1395


Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.


©2009 Project HOPE–The People-to-People Health Foundation, Inc.