Federal Health Care Spending May Be $770B Less Than Expected

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A new study shows that the federal government's spending on health care is growing at a much slower pace than previously predicted.

The federal government may spend hundreds of billions of dollars less than previously estimated in the next eight years thanks to a slowdown in health care spending. The savings would be enough to wipe out a fifth of the budget deficit by 2021.

That’s the conclusion of a study published in the May issue of Health Affairs, which also attempted to figure out why the slowdown is happening.

The annual growth of federal health care spending fell from about 8.8 percent in 2003 to an average of about 3 percent for 2009-2011, according to data from the U.S. Centers for Medicare and Medicaid Services.

The recession accounted for more than a third of the slowdown, the study said. But the majority was due to fewer changes in technology and equipment, new generic drugs, higher out-of-pocket costs for patients, and more efficient care. (The effects of the recession are disputed.  Another recent study suggests the recession accounted for as much as three-quarters of the slowdown, Bloomberg says.)

If the trends persist, public sector health care spending will be as much as $770 billion less than experts had predicted. The potential savings may be an indirect effect of health care reform passed in 2010, Bloomberg says, although critics of Obamacare believe costs will pick up pace next year when most of the remaining elements of the law kick in.

Another study published in the same journal examined the deceleration in spending from 2009 to 2011, and its findings “suggest cautious optimism that the slowdown in the growth of health spending may persist.”

The lead author on the first study was David Cutler, a health care economist at Harvard and a former adviser to President Obama. The other study in the journal was also by a Harvard research team.

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