Health spending slowdown is mostly due to economic factors, not structural change in the health care sector

Health Affairs

Volumn 33, Issue 8, 2014, Pages 1399-1406

  Dranove, David ^a   Garthwaite, Craig ^a   Ody, Christopher ^a  

^a NORTHWESTERN UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; CONSUMER; ECONOMIC DEVELOPMENT; EMPLOYMENT; HEALTH CARE COST; HEALTH CARE POLICY; HEALTH ECONOMICS; HEALTH MAINTENANCE ORGANIZATION; HEALTH SERVICE; HUMAN; MACROECONOMY; PRIVATE HEALTH INSURANCE; SOCIOECONOMICS; ECONOMIC RECESSION; ECONOMICS; HEALTH CARE DELIVERY; HEALTH INSURANCE; INSURANCE; ORGANIZATION AND MANAGEMENT; TRENDS; UNITED STATES;

DELIVERY OF HEALTH CARE; ECONOMIC RECESSION; HEALTH CARE SECTOR; HEALTH EXPENDITURES; HUMANS; INSURANCE COVERAGE; INSURANCE, HEALTH; PATIENT PROTECTION AND AFFORDABLE CARE ACT; PRIVATE SECTOR; UNITED STATES;

EID: 84905977820     PISSN: 02782715     EISSN: 15445208     Source Type: Journal    
DOI: 10.1377/hlthaff.2013.1416     Document Type: Article

References (31)

1. CMS.gov. National health expenditure projections 2011-2012 [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; [cited 2014 Jun 3]. Available from: http://www.cms.gov/Research-Statistics-Data-and-Systems/ Statistics-Trends-and-Reports/ NationalHealthExpendData/ Downloads/Proj2011PDF.pdf
2. Authors' calculations based on the projections in Note 1
3. Cutler DM, Sahni NR. If slow rate of health care spending growth persists, projections may be off by $770 billion. Health Aff (Millwood). 2013;32(5):841-50.
4. Ryu AJ, Gibson TB, McKellar MR, Chernew ME. The slowdown in health care spending in 2009-11 reflected factors other than the weak economy and thus may persist. Health Aff (Millwood). 2013;32(5): 835-40.
5. Kaiser Family Foundation. Assessing the effects of the economy on the recent slowdown in health spending. Menlo Park (CA): KFF; 2013 Apr 22 [cited 2014 Jun 3]. Available from: http://kff.org/health-costs/issuebrief/ assessing-the-effects-of-theeconomy-on-the-recent-slowdownin-health-spending-2/
6. The Kaiser Family Foundation (Note 5) forecasts health spending as a function of lagged GDP growth and inflation using pre-recession data and uses its estimates of GDP growth and inflation during the recession to predict health spending. David Cutler and Nikhil Sahni (Note 3) base their predictions of health spending during the recession on a Centers for Medicare and Medicaid Services (CMS) model that also uses pre-recession data.
7. National trends will not bias our estimates unless regional departures from trends in health spending are correlated with the magnitude of the slowdown yet are not results of the slowdown. (In statistics parlance, "time-varying unobservable covariates" would be correlated with the magnitude of the slowdown.) One standard approach in the public economics literature for assessing this possibility is to look for substantial differences in trends prior to the recession across areas and to see whether or not trends prior to the recession are correlated with changes in the employment-to-population ratio. For example, in our setting we would be concerned if our pattern of coefficients on the quarterly variables were not flat and near zero before the recession. However, we found no such pattern.
8. For example, Emmanuel Saez estimates that from 2009 to 2012, average real incomes per family for the top 1 percent of families grew by 31.4 percent, while average real incomes per family for the bottom 99 of families grew by 0.4 percent. Saez E. Striking it richer: the evolution of top incomes in the United States (updated with 2012 preliminary estimates) [Internet]. 2013 Sep 3 [cited 2014 Jun 3]. Unpublished paper. Available from: http://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdf
9. The Index of Consumer Sentiment is available at University of Michigan. Surveys of consumers [Internet]. Ann Arbor (MI): Regents of the University of Michigan; c2014 [cited 2014 Jun 3]. Available from: http:// www.sca.isr.umich.edu/tables.php
10. Berger D. Countercyclical restructuring and jobless recoveries. Paper presented at: Society for Economic Dynamics annual meeting; 2012 Jun 24; Limmasol, Cyprus.
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16. Stevens AH, Miller DL, Page ME, Filipski M. The best of times, the worst of times: understanding procyclical mortality [Internet]. Cambridge (MA): National Bureau of Economic Research; 2011 Dec [cited 2014 Jun 3]. (NBER Working Paper No. 17657). Available from: http:// www.nber.org/papers/w17657.pdf
17. Two studies (Notes 15 and 16) that examined the aggregate relationship between the macroeconomy and health have found that mortality falls during recessions. This might suggest lower spending during a recession results from health status. However, Ann Stevens and coauthors (Note 16) found that these mortality changes during a recession occurred primarily among the elderly. This suggests that any confounding direct effects of the economy on health are less of a concern for our sample of nonelderly people.
18. Dranove D, Garthwaite C, Ody C. How do hospitals respond to negative financial shocks? The impact of the 2008 stock market crash. Cambridge (MA): National Bureau of Economic Research; 2013 Feb. (NBER Working Paper No. 18853).
19. Some hospitals may have experienced sharp declines in endowments during our study period, which might have led to reductions in investments (see Note 18). However, this effect should not be tied to local economic conditions.
20. We imposed this restriction because the ACA requires insurers to allow dependents ages 19-25 to be covered through their parents' insurance, which resulted in large enrollment changes in this age group during our study period
21. We excluded people with a number of plan types that rarely appear in the data, such as short-term health insurance plans or indemnity plans (most indemnity plans appear to be supplemental Medicare insurance)
22. One limitation of the HCCI data is the lack of prescription drug expenditures for enrollees whose employers use a third-party firm to administer their prescription drug benefits. In the data these enrollees are coded as not having drug coverage.
23. Alexander Ryu and colleagues (Note 4) documented a very similar pattern in spending growth changes in the large employer market during the same time period. The striking similarity in trends should alleviate some concerns when our results are extrapolated to the private health insurance market in general.
24. We used the employment-to-population ratio because it is not affected by decisions to enter the labor force and instead provides a local measure of changes in economic activity resulting from the slowdown. However, our results were broadly consistent with results using the local unemployment rate instead of the employment-to-population ratio.
25. National Bureau of Economic Research. Business cycle dating committee [Internet]. Cambridge (MA): NBER; 2010 Sep 20 [cited 2014 Jun 3]. Available from: http:// www.nber.org/cycles/sept2010.html
26. We winsorized the changes in the employment-to-population ratio at the 5th and 95th percentiles largely to facilitate the graphical presentation of our results. Our conclusions did not change qualitatively when we did not winsorize the variable.
27. Our measure of the absolute change explained the majority of the variation during this time period. In particular, if we estimated our model using a twelve-month smoothed moving average of the employmentto-population ratio as the dependent variable, then our measure of the absolute change during this time period explained over two-thirds of the variation not otherwise explained by the model.
28. It is also possible that the changes in benefit design could lead to changes in health spending. We did not control for insurance plan type in our main regression. To the degree that the slowdown itself might have caused consumers to change to less generous insurance coverage and that this benefit design decreased health spending, this should be considered an effect of the slowdown and should not be controlled for in the regression. That said, when we did control for plan type, we obtained qualitatively similar results.
29. We used the same peak-to-trough change in the employment-to-population ratio for each time period to avoid having to determine the lag between macroeconomic changes and health spending changes.When we used a moving average of periodby-period measures of employment, we obtained similar results. Our regression also included a full set of dummies for quarter years and CBSAs.
30. Mian A, Sufi A. The consequences of mortgage credit expansion: evidence from the U.S. mortgage default crisis. Q J Econ. 2009;124(4):1449-96.
31. This should not be surprising. Atif Mian and Amir Sufi (Note 30) have shown that changes in unemployment from 2007 to 2009 were strongly related to the amount of household debt relative to household income in the local economy before the recession-a variable that is unlikely to be correlated with the growth in health spending.