White House: States Show Health Care Cost Curve Is Bending

White House: States Show Health Care Cost Curve Is Bending

The Economic Report of the President -- 500-plus pages of data and tables on the White House's analysis of all things public policy -- is out, and there's a lot to digest.

One item that struck me was a an entry on the implementation of Obamacare titled "Is the Cost Curve Bending?" The cost curve, in this case, being the projected rise in health care costs.

Over the past decade or so, the rate of health expenditure growth has declined or remained constant in every year. The report tries to determine whether that's the result of a down economy lowering health care consumption, or for other reasons.

The conclusion that Obama's economic advisers reach is that they're not 100 percent sure what's behind the slowdown in health care spending growth, but they basically expect it to continue and believe that that it entails a rosier outlook for the government's finance.

Why do they think that the recent leveling off in health care spending growth will last beyond the economic downturn? They note that the slowdown predates the recession that began in 2007. Also, the authors rely on an analysis of health care spending at the state level, as represented in this chart from the report:

This chart shows that a bigger increase in unemployment correlates with lower health care spending growth at the state level, which is what you would expect. The report's authors, however, estimate the relationship, and conclude that the effect is not large enough to explain the overall national-level slowdown:

As expected, changes in real per-capita total health care spending at the state level are negatively correlated with changes in unemployment in the state between 2007 and 2009 (Figure 5-7 [the chart above]). If the relationship in Figure 5-7 holds at the national level, then the increase in the national unemployment rate between 2007 and 2011 of 4.3 percentage points was associated with a $199 decline in spending per-capita (in 2007 dollars), or 2.6 percent of per-capita health care spending in 2007. This accounts for only 18 percent of the slowdown in spending growth since the start of the recession in 2007 and an even smaller proportion of the slowdown in spending growth since 2002, when the growth rate in real per-capita total health care spending began to decline.

I'm a little skeptical of reasoning about national trends from an analysis of state-level data. At a minimum, I'd like to see the chart above redrawn to show the size of the states and/or to adjust for the relative size of the states. After all, California is orders of magnitude larger than Vermont, yet they both count for one single datapoint in the chart above. In fact, based on this chart alone, I might be more likely to think that the weak economy explains the slowdown in health care costs, because the correlation between the severity of the recession's impact and a decline in health care spending growth is clear, even if the magnitude isn't. Neverthless, it's an interesting chart.

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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