Local economies responsible for slowed healthcare spending

Research suggests effects of ACA overstated
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Healthcare spending has dropped considerably in recent years, a trend proponents of the Affordable Care Act (ACA) attribute to the implementation of the healthcare law. But a closer look shows other factors at play, according to Kellogg Insight.

Most research on the healthcare market's progress since the recession ties macroeconomic trends to overall spending using gross domestic product (GDP) as the primary measure, but that is not a reliable metric because it excludes the average American healthcare customer from the equation, according to David Dranove, a professor of strategy. "The GDP recovered quickly, but the growth is in the tail--and there's only so much healthcare that Mark Zuckerberg is going to purchase," he said in the article.      

An analysis of healthcare spending based on variations in local employment rates, economic factors account for 70 percent of healthcare spending reductions, according to Dranove. In other words, healthcare spending fell with the economic downturn and is picking back up as the economy improves. For example, healthcare spending increases were much smaller in areas hit harder by the recession, such as Las Vegas, compared to less affected areas.

Dranove and his coauthor, Christopher Ody, a research assistant professor of strategy, tested the theory by conducting a second study, this time to gauge the recession's effect on Medicare spending. They found local economic factors had a smaller but still significant effect on spending among Medicae patients from 2009 to 2012, accounting for about 14 percent of spending reductions. The ACA played a larger role in this case, in the form of built-in payment reductions for services Medicare covers.

Dranove stressed that none of this means the ACA hasn't affected healthcare spending, but rather that its effect remains to be seen. If private healthcare spending slows, he said, it would indicate that the ACA is actively pushing back against economic trends.

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