Health Expenditure Projections: When Does ‘New’ Become ‘Normal’?

The history of medical spending can roughly be described using Fuchs’ law: medical spending increases have exceeded GDP increases by about 2.5 percentage points annually since 1950. In the past three or four decades, the differential has been closer to 1.0 and 1.5 percentage points. Consistent with this, the Actuaries project that the growth of medical spending will exceed the growth of GDP by 1.25 percentage points annually between 2017 and 2025. Regardless of the exact differential, the qualitative conclusion is the same: if medical costs increase more rapidly than GDP, medical care will grow as a share of the economy.The continuity between past and future is critical to this conclusion. Generally speaking, what happened in the past is likely to repeat itself in the future. But what if the continuity is wrong? What if fundamental changes have reduced the long-run growth of medical spending relative to the economy?

Source: Health Expenditure Projections: When Does ‘New’ Become ‘Normal’?

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