How America Reduced Its Healthcare Spending by $2 Trillion

Thanks, Obama?

Lucy Nicholson/Reuters

The early days of the Obama administration were a chaos of uncertainty, between the historic housing bust, historic market crash, and historic armada of stimulus. But one thing was clear about the U.S. economy in 2008 going forward: Healthcare would keep on keeping on, in its insatiable way, adding more jobs, soaking up more tax dollars, and demanding a growing share of an American family's budget. In the worst recession in 80 years, it was the one industry that seemed truly recession-proof.

But these days, we're grappling with an interesting and opposite puzzle, one that is equally without precedent. The housing market is re-inflating, the stock market is up, and the stimulus has faded. But healthcare growth is—temporarily? permanently?—slowing down.

Before we get to the question marks, some context: In early 2009, healthcare employment had grown 22 percent since the day President George W. Bush took office in 2001. In that same time, overall employment had grown zero percent. Ze-ro. This discrepancy was among the more dramatic symptoms of growing healthcare costs. As debt piled up, Washington forecasters projected a not-so-distant future when Medicare, Medicaid, and Social Security would exceed all collected tax revenues. Even less lugubrious projections agreed that healthcare spending was just totally out of control, and this was even before some predicted that the Affordable Care Act (or, more commonly: Obamacare) would hasten the country's medical bankruptcy.

Meanwhile, five years after the passage of Obamacare, reality has intervened. Healthcare job growth fell throughout the Great Recession and has continued to fall, then stagnate, and then fall again. The labor market's runaway horse is clearly getting tired.


Growth in Healthcare Jobs: Annual Percent Change

The deceleration of healthcare employment matches the slowdown in medical costs. After a roller-coaster ride through the last quarter of the 20th century, healthcare inflation looks like it's pumping the brakes to park near the 2 percent line, the lowest mark since the year Medicare and Medicaid were signed into law: 1965.


Growth in Medical Care Costs: Annual Percent Change


With slowly growing prices, even rising demand for healthcare has led to less-than-projected spending, in just about every category. (To be clear: This doesn't mean healthcare is getting cheaper; it means healthcare is getting more expensive slower than we anticipated.) The government is casually saving hundreds of billions of dollars in Medicare thanks to both direct cuts and other reforms. Insurance companies, despite a rough year due to the arrival of some expensive new drugs, have been spending less than the actuaries projected in 2010. Even with growth in high-deductible plans, out-of-pocket spending is actually coming in below projections from five years ago.

Forecasts of medical spending have undergone round after round of major surgery. Six years ago, the Urban Institute projected that the country would spend $23 trillion between 2014 and 2019. After Obamacare became law, it raised its forecast by half-a-trillion dollars. But the latest projections, published this month, are lighter by $2 trillion and $2.5 trillion, respectively.


Cheaper Than Advertised: Falling Healthcare Expenditures by Category

That leaves healthcare's $2 trillion question: What's going on exactly? Just about everybody agrees that the answer is "the recession and ..." followed by a smattering of variables, such as cost control measures in Obamacare, the rise of high-deductible plans, and reforms undertaken by doctors and insurance companies, independently, to curb over-treatment. It's strange to think that the recession, which technically ended in 2009, would still have its fingers around the neck of medical cost growth in 2015. But as you can see if you scroll back up to the second chart in this article, healthcare costs tend to follow the rest of the economy with a bit of a lag; prices were still decelerating years after the 1980s and 1990s recessions were over. There might even be signs that the slowdown is entering a new phase: Healthcare employment ticked up in the first quarter of 2015.

It's too early to predict how Obamacare will shape the U.S. healthcare system in the decades to come, especially given the upcoming Supreme Court decision. But as the U.S. enters the last quintile of Obama's term, the administration presides over a surprising historical moment. This was always going to be the Healthcare Presidency. But it wasn't obvious, even to the best actuarial oracles around, that the president who did the most to grow the government's role in healthcare since 1965 would preside over the period of slowest-growing healthcare spending since ... 1965.

Derek Thompson is a staff writer at The Atlantic and the author of the Work in Progress newsletter.