Presentation on theme: "Health Care Spending Growth"— Presentation transcript:
1 Health Care Spending Growth Michael ChernewApril 18, 2012
2 Definitional issues matter Focus on spending at the population (national) level (i.e., Price x Quantity), notSpending per unit of service [i.e. Price]Cost of producing a unit of serviceSpending for a disease cohortDistinguish between total spending or government spendingTotal spending is the most comprehensiveGovernment spending causes most alarmTaxes
5 Excess Spending Growth Average annual growth in per capita health expenditures4.0%3.6%5.6%4.2%4.9%3.0%3.2%Average annual growth in per capita GDP3.1%1.5%2.7%2.0%2.1%0.5%Excess growth in health expenditures0.92.12.92.21.42.7Share of per capita Income Growth Devoted to Health Care5.3%5.5%12.9%16.5%25.5%18.7%91.5%2005 Dollars (adjusted using GDP deflator)Source: Spending and population data obtained from Centers for Medicare & Medicaid ServicesNational Health Expenditures Data, 2011 and Newhouse (1992).
6 Consequences of Higher Taxes If finance higher health care spending by taxes:Marginal tax rates of high income earners could rise to 70% by 2060GDP declines(relative to trend) by 11%.Magnitudes depend on the exact assumptions about tax policySource: Baicker and Skinner: 2011: Assumes health care spending growthconsistent with 2010 CBO long run forecast
13 Could obesity be driving spending Probably contributes to spending growthThe effects interact with technologyCosts were growing faster than real GDP for EVERY 10 year period since WWIIEven before obesity epidemicIf the only change between 1987 and 2001 were BMI, then real, per capita spending would have risen ~ 1%/ year
14 Long run drivers of spending growth Medical technologyNew knowledge (and associated stuff)Less important factorsPricesAgingRising incomesMore generous coverage (static effects)InefficiencyInappropriate useLiability
15 Types of technology changes : little ticket itemslab testsX-Rays: big ticket itemsCABGC-sectionradiation & chemotherapy for breast cancerEarly and Mid 1990sPharmaceuticals2000’sImaging,Biologics
16 Myth: In Other Industries Technology Lowers Spending Do not confuse price (cost per unit) with overall spendingComputersPrices fall: Spending risesDemand is crucial to determine effects of technology on spending
17 Benefits May Justify Cost Slowing spending growth requires us to slow growth in price or quantityDetermining when to apply medical technologies is crucialAverage value of technology (widely viewed as great) may differ from marginal value (may be small)Knowing when to apply technology is crucialOur goal must be to promote ‘value’
18 Technology Reflects the System InsuranceCost ContainmentCan we change the system to preserve innovation but manage new knowledge more efficiently?
19 ImplicationsReductions in the level of spending are important, maybe VERY important, but…Determinants of spending growth often differ from determinants of level of spendingStrategies to control spending growth must be either:Continual one time savingsFundamental environmental changePublic spending growth can be controlled by shifting spending to patients