Jun 15, 2023·edited Jun 15, 2023Author

They consistently predict that health care spending will increase at a faster clip than overall economic growth, thus increasing its share of the economy. Over the past decade, that has been proven wrong. You ask why. Here are my three reasons, in order of importance:

1. The ACA imposed some curbs on hospital reimbursement and physician reimbursement, which those organizations did not try to overcome through expanded utilization (see 3 below);

2. Drug spending, while higher, came in below expectations; and

3. While experiments under the ACA in value-based payment did not result in substantial savings, they did create an environment among hospital providers where eliminating unnecessary tests and procedures in pursuit of overall cost constraint was perceived as a virtue. This may have had some dampening effect on spending -- not enough to transform the system, but a contributor to holding spending at "only" the rate of economic growth.

In my reading of reports and articles by CMS and CBO economists, I am always struck by how they continue to use traditional economic models that use supply, demand, price, and demographics for making their projections. That leads them to adjust their faulty projections as the long-term becomes near-term, but they always re-project the long-term (years 5 to 10 of the projections) as about 1 percentage point greater than economic growth because nothing in their underlying analysis has changed.

What they never do is incorporate other variables that may have equal if not greater relevance when it comes to the long-term: Pushback by payers, for instance, or the changing dynamics within the provider sector, where responses to exogenous factors are best understood by using the tools of behavioral economics.

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1. You note--very accurately--that CMS’s forecasts of increased health care spending—including Medicare and Medicaid spending—have erred on the high side.

2. You then assert that these incorrect forecasts have discouraged Congresses and presidents from urging higher spending on the various social determinants of life.

While no. 2 is an interesting theory, do we have an serious evidence that that politicians decide about this year's higher or lower spending on housing, nutrition, or other valuable social determinants of life (SDLs) in light of CMS’s Office of the Actuary’s predictions about health care spending during the decade ahead? How many politicians—or other Americans—think that far ahead?

I think, rather, that the reality of current high health care spending—not the gap between forecasts and future spending—that inhibits federal and other investments in SDLs.

And therefore, I think, we have to find ways to contain health spending before we will be willing or able to spend more on the SDLs. This will be politically possible and financially necessary within the next decade. Why? Because health costs really are rising. Because revenues to cover them are increasingly constrained by competing demands on public spending.

We will also have to learn more effective ways to spend money on the SDLs.

But we can't suppose that more money will materialize to address SDLs, or that--if it somehow did materialize--the result would be lower health care costs.

Other rich democracies were impelled by crises inside health care (and by economic and political crises outside health care) to cover all people, contain costs, and pay caregivers in ways commensurate with coverage for all and cost control.

None financed affordable health care for all by higher spending on SDLs. The did it by fixing health care coverage and financing.

A focus on SDLs could have the unfortunate effect of letting health care off the hook.

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Good article.

As an economist (but not in health care) I'm keenly interested in your educated guess as to the answer to your question, i.e., "Why do the health economists keep getting it wrong? What assumptions were made that proved faulty?

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