In an era when Californians are more worried about paying for medical care than paying for housing, we should take good news about health care spending from wherever it comes. CHCF’s latest California Health Care Almanac gives us a reason for optimism: Growth in national health spending slowed to 3.9% in 2017, the most recent year with available data. It’s the slowest pace since 2013 and lower than the overall growth rate of the US economy.

It is important to remember this particular data point reflects aggregate national expenditures for public programs like Medicare and Medicaid, all health insurance premiums, and total consumer out-of-pocket expenses. Reduced growth in national health spending means that, overall, consumers have more money for non-health expenses, and government can dedicate resources to other pressing social priorities like education, transportation, and housing. But it doesn’t change the fact that many individual Californians still face significant affordability challenges and are delaying or forgoing care because of cost.

And it is essential to note at least three facts when reviewing the new data:

1. The US is still a massive outlier on health care spending.

When broken down in terms of spending per person, total US health care expenditures per person are double to triple those of other developed countries around the world. The US spends $9,832 per capita, compared with $3,429 to $5,452 in high-income countries such as Italy, the UK, Canada, France, and Germany. These differences are largely attributed to higher prices rather than other factors such as the sickness of patients, the complexity of procedures, or the volume of services.

Health Spending per Capita and as a Share of Gross Domestic Product (GDP)

Selected Developed Countries, 2016

In California, the same general pattern holds true. Health spending per capita in California was $7,549 in 2014, the latest year for which we have comparable data. This figure grew at an average annual pace of 4% from 2009 to 2014 — almost a full percentage point faster than state economic growth over the same time frame.  Widespread regional differences in aggregate spending persist after controlling for underlying costs such as higher salaries in parts of the state.

2. Total US health care spending growth is poised to accelerate. Without aggressive action, California’s probably will too.

Federal actuaries project that national health spending will rise at an average annual rate of 5.5% between 2018 and 2027 — faster than the economy’s projected 4.7% growth rate over the same period. Nearly half of this growth is expected to be driven by higher prices for a range of services. By 2027, health care spending is expected to total $6 trillion and account for nearly one-fifth of GDP.

While we don’t have comparable estimates for health care spending growth within the state, a look at the historical correlation between the national and California figures provides reason to be concerned. From 2004 through 2014, per capita health spending in California rose almost a full percentage point faster than the national rate.

Health Spending as a Share of GDP

United States, 1967 to 2017, Selected Years, and 10-Year Projection

3. Health spending can be significantly reduced without harming quality.

A robust body of academic literature suggests that perhaps 30% of US health spending is wasteful and could be eliminated without harming population health outcomes. The sources of waste can be accounted for in many different ways, but generally involve undertreatment, overtreatment, administrative complexity, excessive prices, and fraud.

Fortunately, it is possible to address each of these issues. For example, in California, health care providers, plans, patients, and purchasers have come together to reduce the overuse of low-value services like imaging for low back pain. Meanwhile, the California Technology Assessment Forum targets pricing failures by generating independent, evidence-based price benchmarks for new prescription drugs and medical treatments.

Digging Deeper into Spending in California

These trends point to an urgent need for richer data to track state health spending and the success of efforts to contain costs. In support of the latter, CHCF has commissioned RAND to produce an in-depth report on state-based approaches to cost containment. The authors have identified the most promising strategies to reduce unnecessary spending without harming access or quality for California families. The report will be released in the fall.

Another step in the right direction is the implementation of the Health Care Cost Transparency Database, funded with $60 million in the 2018 California budget. In the last two months, the California Office of Statewide Health Planning and Development brought together providers, payers, consumers, and other stakeholders to help make important decisions about which spending data will be collected, who must report it, and how much of that information will be publicly disclosed.

A well-designed cost transparency database could provide various stakeholders with new information about what drives health spending at the state level. With luck, future editions of CHCF Health Care Almanacs will show tangible progress toward eliminating the specific spending that is not making Californians and our nation any healthier.

Kristof Stremikis

Kristof Stremikis is director of CHCF’s Market Analysis and Insight team, which promotes greater transparency and accountability in California’s health care system. Read More

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