5 Factors That Influence Healthcare Spending Growth

 Despite a slow growth rate in recent years, national healthcare spending will still increase to approximately 22 percent of the gross domestic product by 2038 under current law, according to the Congressional Budget Office's 2013 long-term budget outlook report.

The CBO also projects spending on federal healthcare programs including Medicare, Medicaid and the Children's Health Insurance Program will grow much faster than the economy, increasing from their current level of 5 percent of GDP to 8 percent by 2038.

The reasons behind healthcare spending growth are complex and involve a number of interacting factors, according to the Medicare Payment Advisory Commission. In its annual report to Congress this month, MedPAC identified the following five notable spending trend influencers.

1. Technology. According to MedPAC, technology is credited as having the most significant effect on healthcare spending growth, with studies identifying it as the reason behind anywhere from 38 percent to more than 65 percent of spending growth.

2. Healthcare product and service prices. The level and growth of healthcare prices have a big impact on healthcare spending. Studies have consistently pointed to price growth as the cause of between 10 percent and 25 percent of healthcare spending growth.

3. Market power. Provider market power also drives spending growth. Hospitals, physicians and other providers have been consolidating at a rapid rate, and merging with others can give them greater market power over insurers and more leverage in payment rate negotiations, according to MedPAC. Studies have found consolidation can lead to an increase of 5 percent or more in hospital prices.

4. Health insurance coverage. Getting health insurance coverage can potentially reduce patients' incentives to seek the most efficient, lowest-priced care, according to MedPAC. One study of an insurance coverage experiment in Oregon found people randomly selected for Medicaid coverage used 25 percent more services than an uninsured control group. However, the recent trend of employers and insurers placing more fiscal responsibility on patients' shoulders in the form of higher coinsurance, deductibles and copayments has contributed to slower growth rates recently.

5. Demographics and patient characteristics. Changes in the age and health status of the population can make a significant difference in healthcare spending; the CBO has identified the aging baby boomer population as a major driver of spending growth. Additionally, national income growth and expanding insurance coverage leads to investment and changes in health technologies, according to MedPAC.

More Articles on Healthcare Spending:
3 Key Observations on the Record Healthcare Spending Growth Slowdown  
Report: State, Local Healthcare Spending Grew Faster Than Nation Rate in 2012  
5 Key Observations on Healthcare Spending, Price Growth in 2013 


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