HKS Faculty Research Working Paper Series
HKS Working Paper No. RWP23-001
Over 2009-2019 the seemingly inexorable rise in health care’s share of GDP markedly slowed, both in the US and elsewhere. To address whether this slowdown represents a reduced steady-state growth rate or just a temporary pause we specify and estimate a decomposition of health care spending growth. The post-2009 slowdown was importantly influenced by four factors. Population aging increased health care’s share of GDP, but three other factors more than offset the effect of aging: a temporary income effect stemming from the Great Recession; slowing relative medical price inflation; and a possibly longer lasting slowdown in the nature of technological change to increase the rate of cost-saving innovation. Looking forward, the post-2009 moderation in the role of technological change as a driver of growth, if sustained, implies a reduction of 0.8 percentage points in health care spending growth; a sizeable decline in the context of the 2.0 percentage point differential in growth between health care spending and GDP in the 1970 to 2019 period.
Smith, Sheila D., Joseph P. Newhouse, and Gigi A. Cuckler. "Health Care Spending Growth Has Slowed: Will the Bend in the Curve Continue?" HKS Faculty Research Working Paper Series RWP23-001, January 2023.