(For The First Time EVER) U.S. National Healthcare Spending Fell

02/24/21 12:49PM EST

Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

(For The First Time EVER) U.S. National Healthcare Spending Fell  - 02.26.2020 black swan cartoon  2

Preliminary data indicate that total U.S. health care spending likely fell in 2020. While spending has recovered somewhat from its pandemic-fueled drop in the spring, it’s estimated that overall it was down 2.0% from 2019. (Altarum)

NH: The federal government has been measuring national healthcare spending ever since 1960, that is, for the last sixty years. In every one of those years, national healthcare spending has marched relentlessly upwards--in every year in both nominal and real dollars and in most years as a share of GDP.

But 2020 was a year of amazing surprises. In that year, according to an estimate using preliminary data from the CMS, national healthcare spending fell by 2.0%. From what it was in 2019 ($3.8 trillion or nearly 18% of GDP), that's a decline of $75.8 billion.

Spending may not have declined as a share of GDP, since GDP was down a bit due to the pandemic recession (-3.5% YoY, according to the advanced NIPA estimate). However, it did decline in both real and nominal dollars.

Let’s break down the -2.0% figure. Prior to 2020, health care spending had been growing around 4-5% annually. From 2018 to 2019, it grew 4.6%. So as a deviation from its previous trend, -2.0% would be more like -6.6%. 

2020 also required a great deal of new health care spending related to Covid-19. This included not only testing or caring for those who were hospitalized, but also care for survivors who developed chronic symptoms. That means the decline in spending not related to Covid-19 was considerably larger than 2.0%. It could be 10.0% or more.

A recent Businessweek piece warns that a decline of this magnitude has created a “shadow health crisis.” It argues that people are skipping necessary care and that this neglect will lead to devastating consequences down the road.

IMO, this is hard to say. Much of the decline was in elective care. According to the new estimates, the category of care that saw by far the biggest decline (-20.2%) was dental services.

Back in October, I noted that the procedures most likely to have dropped off were those that are both invasive and non-essential or non-time critical. (See “During the Pandemic, Americans Aren’t Going to the Doctor.”) 

(For The First Time EVER) U.S. National Healthcare Spending Fell  - Feb24

The decline also included many services and procedures that, frankly, may be unnecessary in the first place. I’ve written often about how the U.S. health care system is the most expensive in the world in part because, well, it overdoes everything: overdiagnosing, overtreating, and overloading the system with administrative costs.

There are no incentives to cut unnecessary spending; the system is designed to generate as much billing and diagnosis inflation as possible. (See “Drugs Are as Effective as Surgical Procedures for Stable Heart Disease” and “1/3 of U.S. Healthcare Spending Goes to Paperwork.”) No one is going to miss this stuff.

The third and last type of service is what the Businessweek piece is referring to: essential care that could have serious repercussions later. These include cancer screenings or electrocardiograms, for instance, that actually do signal the need for interventions that can be demonstrated statistically to pull down the risk of mortality or disability.

But the sad truth is that given the broken state of our health care system, a lot of what we do is not necessary. And until we fix the system, providers have no way to distinguish between one and the other.

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Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.

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