Association for Public Policy Analysis & Management

Research Objective- To examine the shifting trends in the relative contribution of cost per case and treated prevalence on healthcare spending growth.

Study Design- We analyzed healthcare spending growth using repeated cross-sectional nationally representative data on U.S. adults health service use and spending from 1996-2013.  Using methods developed in Thorpe (2013) to analyze cost growth between 1996 and 2011, we decomposed the spending growth into the relative proportion explained by cost per case and treated prevalence of disease.  We divided the sample into three different periods, 1996-2003, 2003-2006, and 2007-2013, to assess how whether the relationship between CPC and TP are changing over time.  We also examined these changes within the populations covered by private insurance, Medicare, and Medicaid.

Population Studied- Participants in the Medical Expenditure Panel Survey (MEPS) from 1996-2013.

Principal Findings- When controlling for overall population growth, we observe shifts in the proportion of spending growth attributable to treated prevalence of disease and cost per case.  The effect of treated prevalence has risen rapidly in the U.S. adult population, accounting for only 26.3% of the growth from 1996-2003, but 77.9% in the 2007-2013 period.  Conversely the proportion of spending growth attributable to cost per case declined from 47.2% in the 1996-2003 period to -29.7% of growth in the 2007-2013 period.  Much of the shifting trend in the growth in costs associated with treated prevalence is concentrated in the in the privately insured and Medicaid adult populations in the recent period, the magnitudes of the changes are much smaller in the Medicare patient population.  Conversely, the shift in the growth attributable to the cost per case is similar for both the Medicare and privately insured population, with much of the remaining shifting trend in Medicare spending growth explained by the growth in the size of the Medicare insured population.   Interestingly, it appears that the impact of treated prevalence on cost growth among Medicare beneficiaries may actually be abating in the most recent period. 

Conclusions - The flattening of healthcare spending growth observed over the 2007-2013 period is largely driven by changes in the relative contribution of the cost per case, despite the increasing prevalence of disease and its increasing influence on cost growth.  This provides some hope for the long term cost growth containment, in that recent data suggests the growth in prevalence of costly chronic symptoms and diseases, such as obesity and diabetes, have slowed or stopped increasing altogether. 

Implications for Policy -Continued policy and clinical practice innovation to further reduce the cost per case, particularly among the privately insured, would provide an additive downward pressure on cost growth.