Health Spending Slowed Because of Recession, Not Obamacare

Health spending has been slow in the U.S. for a number of years. It’s clearly not due to Obamacare. New research by Professor David Dranove and colleagues corroborates that the recession, which started in 2007, is mostly responsible for the reduced rate of growth of health spending:

The source of the recent slowdown in health spending growth remains unclear. We used new and unique data on privately insured people to estimate the effect of the economic slowdown that began in December 2007 on the rate of growth in health spending. By exploiting regional variations in the severity of the slowdown, we determined that the economic slowdown explained approximately 70 percent of the slowdown in health spending growth for the people in our sample. This suggests that the recent decline is not primarily the result of structural changes in the health sector or of components of the Affordable Care Act, and that — absent other changes in the health care system — an economic recovery will result in increased health spending.

Whether there will be significant economic recovery as long as Obamacare reduces incentives for businesses to grow and hire is not discussed in the article.

Comments (13)

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  1. Bart I. says:

    I was never under the impression that Obamacare would slow spending. But I wonder if there is a similar study on health-related investment in things like infrastructure, research, and medical training.

  2. Devon Herrick says:

    I would not normally have thought that an economic downturn would effect hospitals. But apparently people tightening their belts because they’re afraid to spend money on a co-pay does make a difference.

  3. Barry Carol says:

    I don’t know about the ACA but I think something is happening in healthcare to slow spending growth besides the impact of the recession. The Medicare population, for example, is presumably not as affected by factors like job loss and rising deductibles and coinsurance. Yet the standard 2014 Part B premium of $104.90 per month is now 9.1% below its 2011 peak of $115.40 which suggests that per capita spending for the Part B portion of Medicare is down by a similar amount. Moreover, I don’t think Part B spending as a percentage of total Medicare spending changed much if at all over the last five years or so.

    I suspect that there are a number of things happening some of which may be at least tangentially related to getting ready to survive in the post-ACA world. These include more effort by hospitals to reduce infection rates and using more thorough discharge planning to reduce preventable readmission rates. Also, I think there is steady growth in the number of people choosing hospice care at the end of life and choosing it sooner. Fraud mitigation efforts also seem to be getting more aggressive. While there is no silver bullet here, there are probably quite a few silver pebbles which add up to a noticeable slowdown in spending growth. Per capita growth in total Medicare spending is down again through the first nine months of fiscal 2014.

  4. Frank says:

    I agree with Barry. I don’t think health services are necessarily impacted by the recession. People don’t stop getting sick or going to the hospital because of a recession. It is most likely a combination of a whole host of factors.

    • John R. Graham says:

      This paper is one of countless ones corroborating the relationship between economic growth and health spending. People absolutely do reduce their health spending in bad times. This is about the most solid conclusion in health economics.

    • Devon Herrick says:

      A common rule of thumb is that about 30% of medical care is unnecessary, wasteful or of little therapeutic benefit. We also know that about 30% of health expenditure are on inpatient care. My analysis is rudimentary, but a back-of-the-envelope calculation suggests nearly 10% of wasted care occurs in the hospital. During a recession, people may still get sick at the expected rates. But fewer people seeking care in the hospital because they’re uninsured or afraid of co-payments could make a difference. Presumably, the ones able to make that decision are the ones who maybe were more likely to receive care that was of marginal benefit.

  5. Thomas says:

    Interesting how people may be incentivized to not seek health care in economic downturns. People who aren’t on government health care and who pay co-pays are perhaps more likely slow their health spending.

  6. James M. says:

    I do agree that many other factors would probably correlate to slow health spending. I wouldn’t think that the recession only can explain slowed spending on such something with little real substitutes.

    • John R. Graham says:

      Thank you. Nobody said “all”. The research discussed said 70 percent. That leaves 30 to figure out. If we could explain everything, it would be a very boring area of study.

  7. Walter Q. says:

    I am curious about what kind of effect Obamacare will have on health spending in future recessions..

  8. Buddy says:

    Well I guess that’s one less thing we can blame ObamaCare for…

  9. bob hertz says:

    Devon, having watched friends and relatives who were uninsured, I saw them postpone all types of nonemergency medical care, marginal-benefit or not.

    I think you are trying a little too hard to stretch a point here.