Healthcare Spending Trends Downward

Health care spending, among private companies and public institutions, has picked up more steam since the economic recovery of 2013. The health care industry has seen an uptick in hiring due to the Affordable Care Act and the retirement of more baby boomers.

However, the overall trend in health care spending seems to indicate expenditures may drop by as much as $2.5 trillion from 2014 to 2019. The Centers for Medicare & Medicaid Services claims a study done in 2010 indicated overall spending would be $23 trillion from 2010 to 2019. Five years later, the same organization projects around $21 trillion in medical care costs.

Health care spending from 2014 to 2019 breaks down into three categories. Medicare spending should decrease by $384 billion, Medicaid may lower by $927 billion and private health care initiatives could drop by as much as $688 billion. Patients' spending increased 3.6 percent in 2013 when the economy recovered sufficiently from the downturn in 2007.

Different factors have led to this decrease in health care spending. The Affordable Care Act of 2010 and the Budget Control Act of 2011 helped reduce spending, but the largest factor was the economic downturn. People who lost jobs spent less disposable income on health care, and more money was spent on gasoline, housing and food as opposed to health care. Although the projections made in 2010 were done to support the Affordable Care Act's implementation, the new figures project the effects of new legislation plus private-sector losses.

The report by the Centers for Medicare & Medicaid Services counters studies done by the Center for Sustainable Healthcare Growth and the Financial Times. Both entities believe health care spending will increase in the next few years due to the economic recovery. The Financial Times states expenditures will rise thanks to the slower pace of inflation that kept health care costs down for several years. The Center for Sustainable Healthcare Growth believes the 5 percent increase in spending from November 2013 to November 2014 could be temporary.

The reduction in spending may become a two-edged sword for policy makers. The health care industry accounts for 17 percent of the U.S. economy, and any shifts in spending may reduce overall economic activity in the United States. Additionally, as much as 30 percent of health care costs may go toward redundant or unnecessary procedures. A lack of transparency with respect to upfront costs could lead to a lack of practical spending decisions on the part of patients.

If fewer people spend less on health care, what happens to all of the jobs created by new legislation? Moreover, what about the student debt incurred to obtain nursing degrees, medical degrees and advanced certifications? The next economic downturn could be caused by an over-exaggeration of health care costs combined with massive student debt required to obtain an education.

Although proponents of the Affordable Care Act may take responsibility for these lower health care spending projections, the economic downturn and lower inflation represent more likely reasons for reduced costs. Diversification of services combined with technology that improves care offers one of the best ways for health care companies to mitigate any huge gains or losses between 2014 and 2019.

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