Amitabh Chandra, Jonathan Holmes, and Jonathan Skinner: Healthcare Costs Will Continue to Grow at GDP +1.2 Percent for Foreseeable Future:
Has health care cost growth really moderated? We first question whether the remarkable decline in expenditures during 2007-2013 is different; a similar downturn occurred in the early 1990s before roaring back in the late 1990s, and even as of 2013, there is little evidence of health sector employment slowing. Second, we find little evidence that the Great Recession alone was the cause (income effects in health care are small) or that the 2010 Affordable Care Act could take credit (it still hasn’t phased in yet). Third, Medicare, Medicaid, and private insurance exhibited very different dynamics during this period, with private insurance prices escalating and utilization slowing as consumers faced higher deductibles, and Medicare, an entitlement program, untethered from the economic downturn. Fourth, the primary determinant of long-term growth is the continued development of new and expensive technology, and there is little evidence of slowdowns in the technology pipeline; proton beam accelerators are on target to double between 2010 and 2014, and stock prices in the health sector remain exceptionally strong. Finally, while we recognize the possibility of newly developed accountable care organizations (ACOs) and emboldened insurance companies to restrain the growth of health care spending, we predict that health care costs will grow at GDP plus 1.2 percent for the next few decades; lower than previous estimates but still on track to cause serious fiscal pain for the U.S. government and employees who bear the cost of higher premiums in the form of lower wages.