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Slower Growth in Health Costs Saves U.S. Billions

Author: Peter R. Orszag
October 18, 2012


The U.S. continues to experience a very marked slowdown in the growth of health-care costs, despite some widely misinterpreted new reports. And a growing body of evidence suggests the deceleration is driven by more than a temporarily weak economy -- which is good news for the federal budget and for workers.

National health expenditures rose just 3.8 percent from August 2011 to August 2012, according to an Oct. 11 report from the Altarum Institute. And Medicare spending increased by only 3.2 percent in the fiscal year ending in September 2012, according to the Congressional Budget Office.

These are remarkably low growth rates. Consider that over the past four decades Medicare spending increased by more than 10 percent a year.

Nevertheless, last month, many commentators falsely declared the end of the slowdown -- largely exaggerating the findings of a report issued by the Health Care Cost Institute. That report showed expenses for those with employer-sponsored insurance rose 3.8 percent in 2010 and 4.6 percent in 2011.

This modest change was initially described as a "surge." Yet by historical standards even 4.6 percent growth is very low -- and one shouldn't make too much of a 0.8 percentage-point change from one year to the next. What's more, employer- sponsored insurance is only one component of total health spending.

The Altarum figures, which cover total national-health expenditures, also showed a modest acceleration in 2011 -- but then the pace slowed again. "Our data indicate that the 2011 acceleration was not sustained," the report notes. "Spending growth declined in the latter half of 2011 and dropped even further in the most recent months."

So long live the slowdown!

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