Maybe health-care growth is really slowing

Posted by at 09:59 AM ET, 06/15/2012, The Washington Post

Earlier this week I wrote about new projections on health spending, from the Medicare actuaries. It predicted that health-care cost growth would be slow through 2013 — just as it has been in 2010 and 2011 — but then start growing faster as the economy recovers.

What I didn’t look at there was exactly how much faster, and that turns out to be important. When you crunch the numbers, you find that the Medicare actuaries expect health-care costs to grow 0.9 percent faster than the rest of the economy between 2015 and 2021. For health care, that’s actually a relatively low number, especially when you consider what health-care costs growth looked like in the past.

To put that in perspective, a lot of health-care plans often aim to limit health-care cost growth to Gross Domestic Product plus 1 percent, and that’s usually seen as a lofty goal. That’s the target Massachusetts is trying to hit in the cost control bill it’s now debating. And the Medicare actuaries think that could be the road we’re headed down.

Harvard University’s David Cutler passes along this chart that shows historical cost growth rates for health care, dating back to 1960.

These numbers suggest that, over the course of five decades, health-care cost growth has come more in line with the overall growth of the economy. There is a blip in the 2000s that — as you can see in the above note — likely has to do with the economy’s slower growth during the recession.

It’s also worth noting here that the Medicare actuaries tend to overestimate health-care cost growth. They went back and did an analysis of their work recently, and found that they tend to predict costs growth that’s 0.4 percent higher than actually occurred. If the Medicare actuaries perform similarly with this report — or even if 0.9 percent growth turns out to be the case — the country would have the slowest rate of health cost growth that it’s seen in decades.