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Econ professor boils down the decade-long decline in health spending, predicts more of the same

August 16, 2013 3:02 pm by | 1 Comments

world economy slowing downSome leading health economists disagree with the assumption that when the national GDP picks up, so too will the growth of national health spending. On the NYTimes Economix blog, Princeton econ professor Uwe Reinhardt gives his two cents about why healthcare spending will continue to lag. Or, perhaps more dismally: “. . .I would be surprised if health spending in the future grew even one percentage point faster than GDP. The actual differential may well be south of that.”

And here are Reinhardt’s two reasons why (emphasis added):

  1. First, there have been enormous advances in health information technology, putting more and more of the traditionally opaque health care industry into statistical fishbowls that reveal to the world information on both the quality and the prices of health care. As I noted in my previous post, this greater transparency will make it possible to force real price competition on the supply side of the health system, including the powerful instrument of reference pricing.
  2. Second, for the foreseeable future–in contrast to the late 1990s, when the American economy was booming and labor markets were tight–economic growth is likely to be relatively sluggish, as will be labor markets for all but highly skilled workers. It is my theory, forged by the experience of the 1990s, that under  employment-based health insurance  attempts at cost control will fail unless there is high unemployment.Employees who worry about keeping their jobs or unemployed workers desperately seeking jobs are more likely to accept limits on their health insurance, along with higher levels of cost sharing, including reference pricing.

Does this ring true to you?

 

 

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Lindsey Alexander

By Lindsey Alexander

Lindsey Alexander is an Indiana-based freelance writer and editor covering the medical device industry. She earned a degree in journalism from Indiana University and a master's from Purdue.
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1 comments
MichaelSinsheimer
MichaelSinsheimer

My opinion is that is more #2 than #1 because people will continue to go to facilities and physicians they are comfortable with as long as the moral hazard exists which is 3rd party payors footing the majority of the bill - the "transparency" is more important to pricing with "elective" procedures.    

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