Is this Time Different? The Slowdown in Healthcare Spending

57 Pages Posted: 10 Dec 2013 Last revised: 1 May 2022

See all articles by Amitabh Chandra

Amitabh Chandra

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Jonathan Holmes

affiliation not provided to SSRN

Jonathan Holmes

Harvard University - Harvard Kennedy School (HKS)

Jonathan S. Skinner

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2013

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.

Suggested Citation

Chandra, Amitabh and Holmes, Jonathan and Holmes, Jonathan and Skinner, Jonathan S., Is this Time Different? The Slowdown in Healthcare Spending (December 2013). NBER Working Paper No. w19700, Available at SSRN: https://ssrn.com/abstract=2366014

Amitabh Chandra (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Germany

Jonathan Holmes

affiliation not provided to SSRN

Jonathan Holmes

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Jonathan S. Skinner

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2535 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
603-646-2535 (Phone)

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