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America’s Healthy Path to Fiscal Health

BERKELEY – Over the last five years, the growth of health-care spending in the United States has slowed dramatically – to the lowest rate in the past 50 years. The slowdown is not a surprise. It is a predictable result of the recession and slow recovery that have left millions of Americans without health insurance and dampened household spending.

But the size of the slowdown is surprising, as is the fact that it started several years before the 2008 recession – and not only in the private insurance system, but also in Medicare and Medicaid, the two major government health programs. (Medicare provides health coverage for retirees, and Medicaid provides coverage for low-income Americans and their children and those with disabilities.)

What explains this slowdown in health-care spending? How much of it is attributable to the weak economy, and how much is the result of changes in provider and consumer behavior?

Two recent studies offer different answers, but both predict that at least some of the slowdown will persist even after the economy recovers. That would be good news for the US economy, which currently devotes nearly 18% of GDP to health care, by far the largest share among developed countries. It would also be good news for America’s fiscal position, because Medicare and Medicaid are the two largest contributors to the long-term federal budget deficit.