Two healthcare policy researchers last week took a look at the potential impacts on overall U.S. healthcare spending of the COVID-19 pandemic, examining factors on both sides of the spending equation.
Under the headline, “The Potential Effects of Coronavirus on National Health Expenditures,” Sherry Glied, Ph.D., of the Robert F. Wagner School of Public Service at New York University in New York City, and Helen Levy, Ph.D., of the University of Michigan in Ann Arbor, on April 27 published an analysis in the JAMA Network online.
Glied and Levy begin by referencing the fact that the projections released by the Medicare actuaries at the Centers for Medicare & Medicaid Services (CMS) in late March, predicted a growth in overall U.S. healthcare spending from the level of 17.8 percent of gross domestic product (GDP) from the 2019 level of 17.8 percent, to 19.7 over the next 10 years. But, they quickly added, “The coronavirus disease 2019 (COVID-19) pandemic is likely to result in year-over-year changes in both health care spending and GDP that are without precedent. Because the ratio of these 2 numbers, the share of health care in the GDP, receives so much attention in public policy, it is worth thinking about how large these changes may be, and more importantly, what they mean,” they write. Clearly, with the U.S. economy crashing, the percentage of the GDP spent on healthcare will explode in relative terms.
“On one hand, in regions with a great deal of COVID-19 disease, hospitals are operating at or over capacity,” the researchers note in their analysis. “The federal government, states, and hospitals have rushed to purchase ventilators and personal protective equipment and have taken bold steps to facilitate hiring of recent medical school graduates, retired medical workers, and physicians and nurses with out-of-state licenses. This surge in demand will drive up health care spending over the coming months. The range of estimates of the costs of this surge is very wide—somewhere between $34 billion and $500 billion in added private insurance spending, or between 3 percent and 40 percentof current spending, and between $7 billion and $30 billion each in additional spending for the Medicare and Medicaid programs, or between 1 percent and 5 percent of current spending in these programs.”
That said, they write that, “On the other hand, many clinicians have seen the demand for their services substantially decline or vanish altogether. Dentists, primary care physicians, outpatient service practitioners and centers, surgical specialists, and hospital departments that focus on elective procedures have all seen very sharp declines in demand. Between January and March, overall employment in health care actually decreased. Here, the timing of the pandemic is critical. If the pandemic is well controlled soon, the use of these services may simply be shifted into the fall. If not, many of the services (ie, visits and procedures) may never happen. These reductions in spending would offset at least a portion of the increased COVID-19–related expenditures.”
Another element introducing added complexity is the fact that many of the patients being cared for right now are Medicare and Medicaid patients—as well as some who are totally uninsured. The authors note that “The COVID-19 pandemic highlights the stunning differences in the prices paid by private and public payers in the US health care system. Commercial health insurers pay nearly 4 times as much for the kinds of care COVID-19 patients require than Medicare does, and nearly 5 times as much as Medicaid does. If the burden of this disease is disproportionately borne by poor and elderly persons, which appears to be the case, the effects on national health spending will be much lower than if most hospitalized cases are reimbursed through private insurance. In addition, if increased unemployment leads to large increases in the number of US residents who are uninsured, particularly in states that have not yet expanded Medicaid, non–COVID-19 health care spending may decline even after the pandemic is under control. The current employment-based health insurance system, combined with the lack of a coverage safety net, will exacerbate the effects of the pandemic on the most vulnerable people.”
As a result, they write, “The midpoint of these various estimates suggests that the pandemic might plausibly lead to national health spending in 2020 that is 10 percent higher than in 2019. If GDP were unchanged, this increase in health care spending alone would increase the share of GDP devoted to health care spending by 10 percent; the share would increase from the current 17.8 percent to 19.6 percent in a single year. But the effect of COVID-19 on the ratio of health care spending to GDP is likely to be even greater because of the consequences of the pandemic for the denominator: the nation’s output. The effect of COVID-19 on output likewise depends on the course of the pandemic and whether demand returns in the second half of the year. Current forecasts, which generally anticipate a resumption of economic activity by summer or fall, nonetheless project declines in GDP of between 2.4 percent and 8.7 percent for 2020 relative to 2019.”
As a result, they write, “Slower growth in GDP has affected the ratio of health care to GDP in the past; between 2008 and 2009, health care as a share of GDP increased from 16.3 percent to 17.2 percent. But in that case, as in most earlier years, the evolution of GDP and that of health care spending were largely independent, except perhaps through the effects of unemployment on insurance coverage. The COVID-19 pandemic situation reflects an even deeper linkage. The cost of treating patients with COVID-19 is the smallest component of the economic burden of the pandemic. The much greater costs are the human consequence of disease for individuals and their families and the enormous cost of the precautions taken by individuals and societies to avoid this disease. Most of the economic costs of the pandemic,” their analysis concludes, “are outside the health care system. In hindsight, it would have been well worth spending much more on health care, particularly in the form of disaster and pandemic preparedness, to control the pandemic and allow the economy to restart.”
