KFF: It’s the Economy, Not Efficiency, That’s Really Lowering Health Care Costs

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A report out today from the Kaiser Family Foundation (KFF) adds urgency to efforts to repeal the sustainable growth rate (SGR) formula and keep the pressure on health care cost containment. It finds that the current slowdown in health care cost growth is primarily (77%) due simply to the recession and not to efforts to make the delivery of health care more efficient.

Congress is currently weighing creating a permanent fix to the flawed SGR formula that determines Medicare physician reimbursement. Because of the slowdown in health care spending over the past few years, the independent Congressional Budget Office — which estimates or “scores” the budget impact of all legislative proposals to aid lawmakers in making smart budget decisions — recently lowered its estimate for how much it would cost to permanently repeal the SGR. If the KFF report is right, that means that this discount price will not last long.

In the conclusion, the report authors wrote, “our analysis suggests that over time the economy is by far the biggest determinant of changes in health spending overall. Increases in health expenditures are likely to trend upwards over the coming decade as the economy returns to a more normal rate of growth. Sustaining low growth rates in health spending will require continued pressure for containing costs throughout the system.”

The report also predicts an uptick in health care spending when the Affordable Care Act’s individual insurance mandate goes into effect and many Americans who previously lacked health care coverage seek long-delayed care. However, it also noted that this portion of the ACA will become effective at the same time as health care costs would naturally start climbing again because of improvement in the economy. Therefore, just like one should be careful not to attribute the fall in health care spending to policy choices, one should not necessarily attribute the rise to policy choices either.

Read the full report here.