For the first time in more than 50 years, inflation-adjusted healthcare spending declined, according to a research brief published Wednesday by research and consulting organization Altarum.
For the first time since 1960, the first year tracked in the official Centers for Medicare & Medicaid Services National Health Expenditure Accounts, real healthcare spending growth in 2021 was flat. In the first quarter of 2022, real healthcare spending declined by 1.7% year over year, according to the data. This drop is seven percentage points lower than the long-term average, noted author Corwin Rhyan, senior analyst of health economics and policy.
“The decline in real healthcare spending is offering a bit of much-needed respite to otherwise extremely tight consumer budgets in 2021 and 2022, when economy-wide inflation has made the costs of most other goods and services far more expensive due the combined rebound in overall demand following the COVID-19 pandemic and persistent supply and labor constraints on producers,” Rhyan wrote.
In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3% this year and 1% next year, according to the International Monetary Fund.
“The world may soon be teetering on the edge of a global recession, only two years after the last one,” the international financial institution predicted.
The good news for healthcare, according to Altarum’s Rhyan, is that healthcare prices have grown at a slower rate than inflation. Economy-wide inflation skyrocketed in 2021 and 2022, he wrote, but in the same time frame, “healthcare price growth has stayed at or even fallen below its long-term average growth. …The slow growth rate in healthcare prices has been a major factor in keeping healthcare spending under control relative to other economic components.”
Decreasing long-term healthcare spending in the US is a good thing, the economist noted, but he predicted a short-lived slowdown. Rhyan said that he expects the period of low healthcare price growth to come to an end as new provider contracts go into effect later this year. In addition, insurance premiums are expected to continue to increase moving into 2023.
Evidence suggests that next year will be a time of above average healthcare price growth and that the wider economic inflation no longer may exceed growth in healthcare prices, according to Rhyan.
“This would drive nominal and real healthcare spending growth back towards the positive. The extent to which private price growth will pull total health expenditures significantly higher in the rest of 2022 and 2023 remains to be seen, as a countervailing force of lower Medicare hospital and physician reimbursements is also in place,” he wrote.
The dip in healthcare spending, although most likely temporary, will help alleviate some of the COVID-19 pandemic-related spending pressures, the analyst noted.
