Decrease in Health Care Spending Leads to Shrinking Deficit

Conventional wisdom in Washington surrounding health care spending has been doom and gloom — the solvency of federally mandated programs like Medicare and Medicaid has even been brought into question. The pace of growth in costs seemed unsustainable, with projected payouts threatening to strain an already worrisome federal budget deficit.

But it appears there’s a welcomed break in the trendline. Ever since the end of the Great Recession in 2009, the deficit has been shrinking and one reason is an unexpected slowdown in the pace of health care spending, which is the size of about 18 percent of the economy.

This is promising news for those who point to spending in the category as a major culprit for runaway budget deficits. Though experts debate the cause of the slowdown — could it be improved efficiency within the medical industry, the after-effects of the economic downturn or simply that younger Medicare enrollees are healthier than prior generations? — the trend has provided some overall relief to the federal budget.

Health care costs appear not to be budget-breaking as they once were believed to be, though the waves of aging baby boomers and the growing share of Americans covered under the Affordable Care Act will still drive federal health care spending in the long term.

There’s little doubt the punishing economic clump damped demand for health care services in general, and the fact that it hasn’t picked up could reflect the still-soft economic environment since the most recent downturn that lasted from December 2007 to June 2009, according to a recent report from the Brookings Institution.

But whatever the reason, it’s been a sigh of relief for Washington’s budget wonks and it’s even got politicians in both parties thinking how they might need to recast the message that entitlement spending is the root of all evil.

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Jeffrey R. Ungvary President

Jeffrey R. Ungvary