From the Dean: The healthcare cost curve
Every year around this time, economists at the Centers for Medicare and Medicaid Services (CMS) publish their analysis of recent growth trends in healthcare expenditures (they call it national health expenditures), which they then project ahead as to expected expenditures over the next decade. Their most recent work was just published in Health Affairs, one of the most respected journals studying, in the journal’s words, “the intersection of health, health care, and policy.” What is especially interesting in this most recent analysis is what happened during the pandemic and how expenditures are projected to change as some of those pandemic-related policies are phased out.
One very important concept at the macro level is how fast and how much healthcare expenditures grow over time in relation to the growth in our economy as measured by changes in gross domestic product (GDP), which is a measure of the market value of all the goods and services produced by a country in a given year. It is an axiom of macroeconomics that the standard of living in a country can only grow over time if the GDP grows. Since healthcare costs have risen faster than the growth in the U.S. economy (as measured by GDP growth) over decades, it is possible that healthcare cost growth may consume such a sufficiently large fraction of GDP growth that it “forces out” other investments that improve the standard of living. A seminal 2003 study of the implications of the size of the gap between the growth in healthcare costs and the growth in GDP over time was published over two decades ago by Michael Chernew (now at Harvard but he was one of my professors when I got my Master of Public Health degree from the University of Michigan). Although the projections likely have changed since the paper’s initial publication, the concept remains important: Chernew and colleagues found that if the growth in healthcare costs was 1% greater than the growth in the GDP, that growth rate would be sustainable until 2072 (that is to say, for some 70 years forward). But if the difference were 2%, the growth would only be affordable through 2039!
Thus, even though the precise time when such a difference in the growth rates of healthcare costs vs. growth in GDP would cease to be affordable probably is different from the projections from this admittedly dated study, the concept likely is still true: a 1% greater growth in healthcare costs compared with GDP growth is sustainable for many decades, but the closer the difference gets to 2% (or, heaven forbid, greater!) the sooner our country will face a real economic dilemma.
The recent projections from CMS looking at the numbers now, while concerning, are not apocalyptic. The CMS study projects a 1.3% gap through 2032, with healthcare costs rising by 5.6% and the GDP by 4.3%. Even so, the continued faster rise in healthcare expenditures than the GDP results in a CMS projection that 19.7% of the U.S. economy will be devoted to healthcare by 2032. Just to emphasize that number, that’s almost one fifth of our expenditures as a nation (compared to today’s figure of 17.3%)!
The implications from this study are pretty clear: we do need to continue to address the growth gap between healthcare spending and the GDP and try to reign in the growth in healthcare spending, but our healthcare system, as problematic as it may be, is not on the verge of being unaffordable for the nation.
Part of the growth in expenditures relates to the aging of the population, specifically the baby boomers, and their enrollment in Medicare. The study found that of all the major healthcare payers, the largest growth in spending over the next decade will be for Medicare. The last of the baby boomers are expected to join Medicare in 2029; as a consequence, Medicare enrollment growth is projected to be less than 2% during 2030-32, the first time that it will slow to that level since 2022.
There are many other interesting findings and predictions of this (and other) studies, and I plan to touch on some of them in future columns. In the meantime, the new medical students are doing well three weeks into their studies, and we are getting ready to welcome many other students to the campus soon. We have a variety of facility improvement projects ongoing both here in Grand Forks as well as at our other regional campuses, and I plan to have an update for you about them in the next few weeks.
I hope that you are enjoying the summer!
Joshua Wynne, MD, MBA, MPH
Vice President for Health Affairs, UND
Dean, UND School of Medicine & Health Sciences
