U.S. Health Costs Rising More Slowly, But Will It Last?

Americans still pay more than twice the price for health care than most other developed countries, but the sticker shock has come with a bit of good news in recent years: Costs are rising more slowly. But what's behind it? And will it last?


Americans still pay more than twice the price for health care than most other developed countries, but the sticker shock has come with a bit of good news in recent years: Costs are rising more slowly.

"Exceptionally slowly," as the authors of a new Health Affairs study put it. Between 2009 and 2011 -- years that included and immediately followed the recession -- health spending grew at about 3 percent per year. That's down quite a bit from the 5.9 percent increase seen in the previous 10 years.


Most health economists agree it's a good thing, but they diverge on why the dip occurred and even more so on how long it will last. If the slowdown was tied to job loss and benefit changes that shifted more costs to insured Americans during the economic downturn, then overall health costs may surge again once the economy picks up.

But according to Michael Chernew, a professor of health care policy at Harvard Medical School, that's only part of the story. By studying more than 10 million employees of large firms who kept their coverage during the economic downturn, Chernew and his co-authors found that many employees' out-of-pocket costs increased as their employer-sponsored plans became less generous between 2007 and 2011. Even so, that dip in "generosity" -- and the accompanying apprehension by some to seek health care services -- only accounts for about a fifth of the decrease in health costs, the study concluded.

And that could mean that something more systemic and perhaps long-lasting is at play in reducing U.S. health costs. Chernew joined the NewsHour late last week to discuss the Health Affairs study and what it might tell us about ever-inflating U.S. health costs.

NewsHour: Michael Chernew, thank you for joining us. Tell us briefly what you were hoping to accomplish here.


Chernew: We tried to address the explanation that the slowdown in health care spending was "just because people were losing their jobs." And the way we addressed that is by looking at a bunch of people that didn't lose their jobs. We also tried to address another explanation, that "coverage was just becoming less generous." And it is true that over this time, health insurance coverage was becoming less generous.

But we found that amongst people who retained their coverage, the reduction in generosity only accounted for 20 percent of the spending slowdown. So we concluded that whatever has been going on transcends job loss or generosity declines. It made us more optimistic than we otherwise might have been that the slowdown in health care spending might persist.

NewsHour: So if not job loss or shifting benefits, what do you think might account for the slowdown?

Chernew: I think the most likely things going on would be a general change in the rate of introduction and adoption of new technologies and a general change in the culture of practice amongst health care providers -- hospitals, physicians and the like. I perceive personally that over the past five years, there's been a particular focus of the provider community on addressing the issues of health care spending growth. And our results are consistent with that. I should also emphasize that the data doesn't show that health care spending was dropping, only that it was rising at a lower rate, so that's a very important distinction.

NewsHour: What particular practices are doctors and other health care providers putting into place that might account for the drop?

Chernew: Well I think it's just greater attention to medical spending and greater attention to their use of particular medical services. Some of the things that might be going on could relate to the introduction of new drugs and drugs coming off patents. Other things that could be going on are changes to particular technologies. An example of this type of cultural change would be the American Board of Internal Medicine's Choosing Wisely campaign, where the medical community itself has been trying to identify medical services that might not be needed. And by reducing their utilization, you can not only help slow the rate of spending growth, but it's also possible you can improve the quality of care.

NewsHour: A decrease in new technologies may be a good thing for slowing down health costs, but if we're not adopting these technologies, could that ultimately be a bad thing for our health care system?

Chernew: First of all, we did not look specifically at technologies, so I was speculating beyond the evidence in our study. That said, it is certainly the case that as we begin to develop a sustainable health care system, we do have to worry a lot about the incentives to innovate and the rate of innovation. And perhaps more importantly, we have to strive to innovate those services that are of high value but not adopt services that might be wasteful. And it's clear that a lot of technology is wonderful; some not so much. The challenge is to figure out which is which.

NewsHour: Do you think this slowdown will persist?

Chernew: I guess I have two personal thoughts. The first one is I am cautiously optimistic, but certainly our evidence and frankly the other evidence I've seen is far from definitive about what's going to happen in the future. It's much easier to examine the past than the future. But I personally am cautiously optimistic that there really has been a change in the culture surrounding the practice of medicine that will ultimately put us on the path toward a sustainable health care system.

The second one is that I think it's really important that people not interpret our findings to imply that we have solved our problems and we should all go home. I think that it's important to understand that we should try and eliminate waste from the health care system whenever it exists, regardless of the underlying trends in health care spending are, and that continued efforts and vigilance will be needed to extend our success. Although we found results consistent with the idea that there were structural changes going on, we believe we still have to continue our efforts to develop a little more efficient health care system and to adopt incentives to promote continued delivery of high-value but fiscally sustainable care.

NewsHour: Finally, what's your prediction about how the Affordable Care Act will play into all of this?

Chernew: Most analysts, me included, predict that spending will go up because you have a greater number of people with coverage and access is improved. On the other hand, the Affordable Care Act has put in place a number of structures that I think in the long run will contribute to developing a more efficient health care system. They've made some changes to Medicare that I think have a potential to be successful.

Again, I think there's a lot of work to be done in that area, but there's certainly the potential for successes. We've adopted certain types of new payment models and other types of innovation that have made changes in the private sector in terms of the exchanges and competition and things like that. So there's a lot in the Affordable Care Act that I think has the potential to really help improve the health care system but in the near term, I think the prudent assessment would be that health care spending would rise simply because you're bringing a lot more people into the system. It might not rise per beneficiary, but national health care spending overall will probably reflect the greater number of people in the system.

NewsHour: Michael Chernew, thank you so much for joining us.

Chernew: Thank you.

Top photo by Don Bayley.

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