Altarum: Healthcare spending declined in Q1 for the first time in decades

Health spending declined for the first time in more than 60 years during the first quarter, according to a new analysis from Altarum.

The Centers for Medicare & Medicaid Services (CMS) first tracked national health expenditures in 1960, and, through 2020, health spending outpaced economywide inflation each year. But in 2021, spending stayed flat, and in early 2022, inflation-adjusted spending decreased by 1.7%.

That is a decrease of seven full percentage points from the long-term average of 5.3% growth, the researchers said. The growth in healthcare spending has held true even in previous periods of high inflation, such as during the 1970s.

The analysts caution, however, that this trend is not likely to extend beyond the short term.

"Decreasing the long-term trajectory of health care spending in the US has been a longstanding goal of policymakers and business leaders, and these new data in some ways indicate a short period of success in this arena," they wrote in the report. "However, despite indications of a slowing health care cost trend over the past 18 months, many of these impacts are expected to be short-lived."

As spending declined this year, health expenditures also decreased as a portion of the gross domestic product, according to the report. Health spending as a portion of GDP peaked at 20% in mid-2020 before falling to 18% by May of this year, the analysts found.

Overall economic growth in the U.S. has rebounded much more quickly post-2020, according to the report.

What's behind the spending decline? Slow growth in healthcare prices is playing a key role, the researchers said. In the first quarter of 2022, the consumer price index was up by more than 10%, and the producer price index was up by 8%.

Altarum's healthcare price index, meanwhile, grew by just 2.3%, on par with much of 2021. The analysts said price growth has likely stagnated due to delays in contract negotiations and government policies that would set the prices for the future. The analysts expect price growth to again accelerate in the near term.

For one, private insurance rates grew by 3.9% year over year in June, which foreshadows a period of above average healthcare price inflation. Early 2023 marketplace rate filings suggest the same, the report says.

"Regardless, we expect that when final CMS national health expenditure data are released for 2021 and 2022 that they will likely show a meaningful dip in the real long-term health care cost trend, at least temporarily alleviating some of the spending pressures that occurred in 2020 due to the COVID-19 pandemic," the researchers wrote.