In reading The Economist and comparing GDP growth rates of various countries, I have noticed (not surprisingly) that it is much more difficult for large economies like the United States and the United Kingdon to generate rates of growth much above the 2.0 to 2.5 percent range. It is not unusual for smaller countries (or large countries like China but with a smaller GDP) to realize annual economic growth of 6 percent or higher. The lesson learned: You have to look at both the percentage rate of growth and the size of the economy to get a better picture of what is happening. Percentage changes are important but they tell only part of the story.
For some of the same reasons, studying growth in healthcare spending by focusing on year-to-year percentage change bothers me. With health care being such a gigantic industry (17 percent of the U.S. economy), small percentage changes should be the norm, not a rarity. There are all kinds of reasons set forth on why the rate of increase in health care—and Medicare—spending has abated in the past few years, but I can’t help but wonder if the lower growth rate hasn’t been due at least in part to the huge size of the industry.
A 4 percent increase might sound like a huge victory in holding the line on cost increases. But with healthcare spending approaching $3 trillion a year, 4 percent doesn’t seem so small anymore: It represents growth of $120 billion a year.
Going back a few years when annual healthcare spending was $1.8 trillion, a 6.5 percent growth rate would have also represented about $120 billion of new spending. We would have been much more upset with the 6.5 percent rate of increase than we are with the 4 percent now. But the added dollars, with some adjustment for inflation, would have been the same.
So what? Beware of judging our effectiveness in bending the healthcare cost curve by simply looking at percentage changes. The total dollars involved—both the base and the annual increases—matter in getting the complete picture. Even though the growth rate may be 4 percent, throwing $120 billion more into health care is a lot of extra cost. We shouldn’t be congratulating ourselves too quickly.
Dean C. Coddington is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter.
Publication Date: Tuesday, July 16, 2013