The U.S. Saved $1 Trillion on Health Care. Why Doesn’t It Feel Like It?

Dan Gorenstein (DG): For more than a half century, health care spending in the U.S. has steadily gone up.

President after president has bemoaned that more and more of our tax dollars, paychecks and companies’ bottom lines went to pay for health care.

Ronald Reagan: The skyrocketing cost of health care.

Bill Clinton: Our health care is too uncertain and too expensive.

Barack Obama: Our collective failure to meet this challenge, year after year, decade after decade, has led us to the breaking point. 

DG: But, over roughly the last 15 years, something unprecedented has happened. Our health care spending slowed down.

David Cutler (DC): We have never seen a period that long where healthcare did not grow as a part of the economy. We just haven’t seen it at all. So it was just stunning. 

DG: Today, one of the country’s top health economists explains how we slowed the health spending train … and what it means at a time when so many of us struggle to afford their medical bills.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

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DG: Economist David Cutler has advised multiple presidents on health policy. Was a key voice in crafting Obamacare.

So when he published a splashy new paper with The Brookings Institution, suggesting that America has actually saved money on health care, I had to give him a call.  

DG: So you have this new analysis here, David, of health care spending that will probably take many Americans by surprise because it’s a rare bright spot. You found that the United States is spending a lot less on health care than we expected 15 years ago.

You calculate that we’re saving so much on hospitals, prescriptions and doctors that spending in 2024 came in about $1 trillion less than projected. What did you think when you saw those results?

DC: Immediately I was like, I have to understand that, we have to try and understand what’s going on. Is it good? Is it bad because we’re denying care to people who really need it? What are we doing that’s successful? What are we doing that’s not successful? How could we do more of the successful things? So it’s something that is both stunning and immediately when you hear it, you start to ask yourself about 25 or 30 questions.

DG: This might seem weedy, but I think it’s important because it’s trying to understand the sort of practical, real world value of this calculation, at least for me. You’ve done this analysis by comparing how much we’re spending against what we were expected to spend. 

Like, how realistic are those projections? Right? Because we’re talking about $1 trillion in the context of what people in Washington were projecting, but that’s just a projection.

DC: Yep. It’s just a projection. the projections are largely based on the historical trend, that health care keeps going up as a share of the economy. Those are reasonable projections.  They’re made by the actuaries at the Centers for Medicare and Medicaid Services.

So they’re real in the sense that at the time they were made, no one would have said, oh, this is a stupid way of doing it. No one would have said, oh, what the hell are these people doing? This is just awful.

DG: So you are stunned. This is a very big deal. But the U.S. still spends more than $5 trillion each year on health care, more than what most economists and policymakers think is appropriate, and we also know that health care is less affordable than ever for many Americans.

Two thirds of Americans polled by KFF said they worry more about health care costs than housing or other essentials like groceries. I can imagine the average American saying, cool, look, we’re saving $1 trillion. But what does that do for me?

DC: One way it shows up for people is that the federal budget is way more in balance than we had guessed it would be. 

So if you remember back in 2010 there was the huge deficit that we were facing and we had to slash and cut and so on. We never slashed and cut. But yet things turned out okay. The reason they turned out okay is because health care came in lower than expected.

Similarly, when employers face higher health care cost growth, they, if you will, take it out on employees with slower wage growth. Had health care costs gone up at their historic rate, wages would be nowhere near as high.

DG: Ok. Got it. Because we spent less on health care, we could avoid federal spending cuts, say, on research or schools or defense. And employers paid workers a little more because they spent less on health benefits. 

But I know from talking with you that you also recognize that there are a lot of ways that focusing on this eye-popping total, $1 trillion in savings, overstates the benefit of the slowdown to many Americans. Tell us more, David, about that disconnect. 

DC: I think there are a couple of things. One is there was $1 trillion to give out. 

And that means the average person is better off. But not everybody is average here. And in particular, higher income Americans’ incomes are going up more. If your income is growing 0% a year, you’re still in trouble because your healthcare is still going up faster than your income. 

DC: Another reason why it’s difficult for people is, part of the way we’ve saved money is a third of people have a high deductible health plan. That means they’re spending $2,500 or more before insurance pays anything. That’s partly kept the insurance rates down. That’s kept total spending down because people spend less. But that’s a really big issue for people. 

DG: I want to pause a bit on your second point about high-deductible health plans.

People are spending less because they have to foot more of the bill before their insurance kicks in. 

That’s a big part of why spending has slowed down. 

What do we know about what people are spending less on? Because that really matters obviously here.

DC: Some of the things that people are not buying are good. So we say, for example, this medication used to cost you $15 and now it’s going to cost you $75 a month.That gets some people out of that drug into the generic that saves money.And that’s what we want to do.

On the other hand, people cut back. We know, for example, that when people go to the local drugstore and they say, oh, you know, your drug has gone from $5 a month to $10 a month, fewer people pick up the med. Just the fact. Fewer people pick it up.

‘That is not good, especially if it’s one of those chronic disease meds that the value of which is extraordinarily high relative to the cost. So we have used a very blunt meat cleaver to try and get rid of fat, and … it has absolutely cut things, but it has not cut things in the way we would like it to have happened. 

DG: Are we any closer to figuring out how to hold onto the cost savings benefits we get from high deductibles while avoiding the harms? 

Or is this an unavoidable consequence of this product?

DC: We have not figured out how to make that product usable in any real way at all. And that’s a real problem. It’s so complicated that people really have a difficult time understanding what’s covered, what’s not covered. It taxes people’s energy to try and figure out how to make that thing work.

One of the things that strikes me is that if you have any questions at all about your retirement plan, you can get an answer at two in the morning. You can go on the web. You can figure it out. There will be someone there who will help you out, walk you through everything. If you have a question about your health care, who the hell can you ask?

Finding a way to make high-deductible plans work better is likely to become even more important.

President Trump and Republicans in Congress have made encouraging more Americans to buy these plans a key part of their health care affordability agenda.

When we come back, David explains how the U.S. has slowed down its health spending, and whether all of this can last.

BREAK

DG: Welcome back. We are continuing our conversation with Harvard economist David Cutler, who has a new analysis with rare good news on health spending. 

His work found the U.S. spent $1 trillion less on health care in 2024 than experts expected.

Okay, so David, you’re talking about $1 trillion. And I want to pivot to how the U.S. has cut its spending. Generally speaking, there are two ways to save money: buy less stuff or pay lower prices.

Your analysis here has found that we’ve done both. Bought less stuff and Paid lower prices. You called out one example saying we’re more judicious about getting MRIs and CT scans, saving us $39 billion in 2024.

DC: It’s been remarkable, actually. Imaging was the poster child for care that was incredibly valuable, but also stunningly overused. 

And sometime around 2010 across basically all insurance, the growth rate of imaging slowed. And that’s remained that way for the past 10 or 15 years.

Some amount of it is because doctors are like, well, I’m exposing people to a lot of radiation. I’m not sure I need that.

Insurers are getting tougher in terms of authorizing the imaging.

Sometimes it’s what we were talking about which is the patients have more cost sharing. And so the doctor says, well why don’t we get an image. And the patient says, I don’t have that money. So they just don’t schedule it.

Given that imaging was overused, our general sense, although we don’t know for sure, our general sense is that we haven’t had incredible harms from the slowdown in imaging growth.

DG: And by harms, you mean…

DC: A big harm would be, for example, people not getting cancer screenings. So if you saw that what we were doing was fewer mammographies for age eligible women, you’d say, oh my gosh, why are we doing that? 

DG: Because that would be really losing meat, if we’re not doing mammographies for age appropriate women, that would be a serious problem. 

DC: That would be a really big problem. You do not want to save money by cutting back on services that are really beneficial to people.

DG: So that’s an example of buying less stuff. We’re not buying scans at the rate we once did.

What’s a good example, David, of an area where the price of medical care has dropped?

DC: So in 2010. If you needed a hip replacement, it involved, I don’t know, three to five days in the hospital, intense rehab in a skilled nursing facility and so on. And now your hip or knee replacement is done in an ambulatory surgery center or hospital outpatient department. You go home the same day and it’s minimally invasive now.

Private insurers would pay $40,000 for an open surgery in a hospital, and they pay maybe $20,000 for an outpatient hip replacement. It is safer, more effective and cheaper. 

DG: David, as I read your paper, technology came up again and again. We’re talking about the new drugs that prevent or cure disease, helping people avoid expensive hospitalizations, as you were just referring to. That’s a big part of this trillion dollars, right?

DC: It is. Take heart disease. If you went back to 1960, there was basically nothing you could do. People would die. People were severely impaired.

And then we invented all sorts of expensive ways to care for people. You could do bypass surgery where you crack open their chest and you do a bunch of stuff. You could put a stent in them. That little stent is $5,000 and so on.

We now treat risk factors for heart disease with medication and the share of people in the hospital with severe heart disease, heart attacks, congestive heart failure, things like that is plummeting, way down. So we treat heart disease in a very different way now with pills and prevention.

So there’s this technology cycle that we hadn’t seen in health care that we’re now seeing in area after area, which is prevent, make it cheap and then get close to a cure, where you don’t need all that other stuff.

DG: Ok, so we have seen this recent slowdown, but you mention in your paper David, that we’ve seen spending growth tick up in the last few years. What’s going on there? 

DC: We don’t have the total answer to what’s happened in the last couple of years. We know some things like, for example, GLP-1 inhibitors are being used much more than they were. It may be good in the long run for spending, if people are healthier and don’t need as many hip replacements and cardiovascular procedures and so on. In the short run, it leads to more spending. 

There are also treatment changes in areas like cancer and a variety of other areas where spending is going up. There’s probably also some price increases delayed from the couple of years of very high inflation. Some people are quite alarmed by what they’re seeing in the past couple of years. Other people think it may be a wiggle in the long term trend of a historic slowdown.

DG: And so, whatwould really derail spending, something that would turn that wiggle into a sustained surge upwards? 

DC: They would be things like conditions that we don’t now know how to treat that all of a sudden we can treat very expensively, but that don’t save us a lot by improving health. 

So the classic example would be something that modestly slows the growth of, for example, Alzheimer’s disease or dementia, that doesn’t fundamentally change the course of disease. So people still need an enormous amount of care and that the treatment itself is very expensive.

What’s really expensive is to be in a state of chronic illness. Anything that extends life with chronic illness is going to add to expense. Anything that reduces the amount of time in chronic illness will reduce that.

DG: So how do we do that? What would need to happen for this historic slowdown in spending to continue? 

DC: First is continuing to develop things that are cheaper and better. Minimally invasive surgery. Pills to reduce hospitalizations. New and cheaper ways of addressing chronic illness.

Second is lower the outrageous administrative costs of running the system.

We In the past three or four years, have developed a technology that is unbelievably good at substituting for people in routine stuff.

DG: I think it starts with an A.

DC: It starts with an A and ends with an I. So if we could figure out how to use AI to do that stuff, oh my goodness gracious. We could really reduce the prices and the spending a lot. 

So I see it as a kind of race between things that will drive up spending, whether good or bad, and things that we know we can reduce spending with, hopefully in a good way.

I like to think that the good scenario is more likely. But I admit that that’s some wishful thinking.

DG: Final question. You’ve spent the last 35 years trying to crack this nut of lower health care spending. We’re seeing this unprecedented slowdown. 

At the same time, a lot of people, as you know. They’re still struggling to afford their health care. We’re going to see, you know, millions of people lose their coverage as a result of changes coming out of Washington from the one big, beautiful bill. Do you feel like you’ve succeeded? That you’ve accomplished part of what you’ve set out to do, make a good health care system a little bit better?

DC: I think we have done that. The way that I think about it is what we’ve done is we’ve taken a system that was growing so rapidly that it was really, really harming people, a lot of people, and now it’s harming somewhat less. But we haven’t yet done what we need to do, which is to make it really work well. We want to go from good to great. We’ve gone from good to pretty good.

DG: David, thank you for taking the time to talk to us on Tradeoffs.

DC: Thank you so much.

DG: I’m Dan Gorenstein, this is Tradeoffs.