Health spending trends may damage US economy

Close up view of a calculator

The current healthcare spending curve, though modest by historical standards, remains too high and could damage the U.S. economy over the long run, according to a new post in the Health Affairs Blog.

“Health spending appears to be on a path somewhere between gross domestic product (GDP) growth plus zero percent and GDP plus 1 percent, depending upon various factors including the timing and severity of future recessions,” wrote Charles Roehrig, founding director of the Altarum Institute for Sustainable Health Spending, and author of the study. But according to Roehrig, even at that fairly modest rate, such a growth curve may itself not be sustainable.

Healthcare spending was on the rise last year, reaching a 5.8 percent increase. But it has moderated so far this year, reaching only a 4.7 percent increase during the first part of 2016.

Roehrig had declared a couple of years ago that healthcare spending increases would likely moderate, after topping a 7 percent annual increase trend in the first quarter of 2014.

With a balanced budget, taxes at a historical highs and defense and other spending at historical lows, (an inflection point for those demanding lower taxes), Roehrig said that “even this uncomfortable option requires an infeasibly low rate of growth in health spending of (four percentage points below GDP).” To keep healthcare spending at 1 percentage point above GDP with a balanced budget would require tax revenues to rise above 23 percent of GDP--much higher than at their highest point, at 18.3 percent of GDP.

Roehrig concluded that the U.S. needs to cut down on spending for healthcare services. “We should put even more focus than we have been on reducing the rate of increase in health spending below that of GDP (without sacrificing the gains in expanded coverage),” he wrote. “This will bring our health spending share of GDP down closer to other advanced nations and make our other federal budget choices somewhat more palatable (though still very painful).”

- read the Health Affairs blog post