30% of GDP in the United States dedicated to healthcare, unless …
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Victro-Fuchs-healthcare-spending
Victor Fuchs, probably the most prestigious living health economist in the world, writes an interesting article on the evolution of health spending in the United States in the last 60 years (N Eng J Med 2013; 368: 107-109)
A quick summary of it:
The difficulty of forecasting health spending
How much will the United States spend on healthcare in the next decade or two? Prof. Fuchs begins by asking himself. Unfortunately, he continues, predicting healthcare spending is extremely difficult. Future expenditures depend, in part, on changes in the health sector and, in part, on the evolution of the economy. Changes in the healthcare sector include changes in the prevalence of health problems, such as obesity, infectious diseases, and dementias, as well as changes in medical technology, such as new drugs, imaging equipment, and surgical procedures. The economy as a whole includes variables such as the unemployment rate, trends in wages and prices of securities and housing.
An optimistic reading
The President’s 2013 Economic Report makes an optimistic reading of future healthcare spending, based on the slowdown in the growth rate of healthcare spending in recent years. The report comments that a possible explanation is the economic recession, but says that it is not a relevant factor, in relation to the greater efficiency in hospitals and groups of doctors, payment reforms and initial results of the Affordable Care Act (“Obamacare” ).
The answer is important because if the United States has entered an era of moderate growth in health spending, the current pressure for radical changes in financing systems, modes of payment, organization and delivery, would lose urgency. If, on the contrary, the present slowdown is mainly due to the most severe recession since the 1930s, ‘the rapid growth in healthcare spending will likely return when the economy becomes more robust.
Data from the last 60 years
An examination of data from the last 60 years, comparing economic growth with growth in health expenditures, indicates that there has been a strong relationship between the two. Between 1950 and 2011, real GDP per capita grew 2% per year, while health spending per capita grew 4.4% per year. The gap between the two growth indices -2.4% per year- resulted in health expenditures going from representing 4.4% of GDP in 1950 to 17.9% in 2011.
In the 60-year period, most of the increases (and decreases) in GDP were accompanied by similar movements in health spending.
The introduction of managed care
The only exception was in the 1990s when health spending growth was below 3% per year, even when real GDP per capita was accelerating above that figure. This was precisely the period of introduction of “managed care”. Under the “managed care” insurance companies selectively contract with hospitals and doctors; fees and prices are negotiated in advance; medical decisions are subject to external review; patients are fined if they go to providers outside of their plan’s network; and providers sometimes share risk with insurers.
A forecast for 2040
Between 1950 and 1995 the gap between per capita GDP growth and per capita health spending was 3.1%. Between 1995 and 2011 this gap was 1.7%. Maintaining the 60-year gap of 2.4% until 2040 would mean that the percentage of GDP dedicated to health would reach 30% in that year. The simple continuation of the gap of 1.7% until 2040 would give rise to 26% of GDP dedicated to health, which would be a great national problem and for public finances.
Is it possible to extrapolate the last two years?
Some observers focus on the significant decline in 2010 and 2011. How useful is expanding the pattern from two years to the next 20 years? . When we analyze these years, we see that part of the cause of this decline is the change from brand-name drugs to generic drugs, as well as the reduction in hospital readmissions, phenomena that are difficult to repeat.
In conclusion, the growth rate of health spending seems to be substantially related to the increase in GDP.