Americans could save $770 billion due to slowdown in health care spending

A slowdown in the growth of U.S. health care costs could mean that Americans could save as much as $770 billion on Medicare spending over the next decade, Harvard economists say.

They point to several factors, including a decline in the development of new drugs and technologies and increased efficiency in the health care system, to explain the recent slowdown.

The paper is published in Health Affairs by David Cutler, the Otto Eckstein Professor of Applied Economics, and co-author Nikhil Sahni, a senior researcher in Harvard’s Economics Department.

If those trends continue over the next decade, they say, estimates of health care spending produced by the Congressional Budget Office and Centers for Medicare and Medicaid Services (CMS) Office of the Actuary could be off by hundreds of billions.

“Historically, as far back as 1960, medical care has increased at about one-and-a-half to two percent faster than the economy,” Cutler said. “In the last decade, however, medical care has not really grown as a share of the GDP. If you forecast that forward, it translates into a lot of money.”

Money, Cutler said, that could have a profound effect not just on government spending, but on average workers as well.

If the growth in costs remains flat, Cutler said, money companies might otherwise spend on health care could be directed back to workers in the form of increased salaries. Reduced health care costs could also help relieve financial strain on other critical government programs at both the state and national level.

“At the federal and state level, we’ve cut everything but health care,” Cutler said. “If we can hold the growth in health care spending down, it would reduce the pressure on government, and would allow us to avoid funding one program at the expense of others, or raising taxes.”

While recent forecasts by the CBO and Medicare actuaries have taken the recent slowdown in health care spending into account, those estimates come with a fatal flaw – an assumption that costs have slowed largely due to the 2007 recession.

By comparison, Cutler and Sahni’s study suggests that just over a third, about 37 percent, of the decrease could be chalked up to the recession. Instead, they say, the bulk of the decline could be attributed to factors like a decline in the development of new treatments.

Source: Harvard University, USA



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