The Centers for Medicare & Medicaid Services (CMS) has released the 2024 National Health Expenditure (NHE) report, which shows that US health spending grew 7.2% to $5.3 trillion, accounting for 18.0% of the country’s gross domestic product. This increase has led to concerns that healthcare is too expensive and that prices must be reduced. However, the report suggests that the issue is more complex, and that the increase in spending is largely driven by non-price factors such as higher demand and shifts in the mix of goods and services.
The concept of the Jevons paradox, which states that improving efficiency can lead to increased consumption, is relevant to understanding the healthcare spending trend. In the 19th century, economist William Stanley Jevons observed that improving the efficiency of coal use led to increased coal consumption, as the lower cost made it more accessible and widely used. Similarly, in healthcare, improvements in efficiency, such as reduced administrative burdens and increased access to care, can lead to increased utilization and spending.
The CMS report highlights that private health insurance enrollment, Affordable Care Act Marketplace enrollment, and total private health insurance spending all increased, contributing to the growth in healthcare spending. Additionally, Medicare and Medicaid spending also grew, with hospital prices rising 3.4%, the fastest rate since 2007. However, the report notes that high insurance coverage does not necessarily equate to high-quality, high-value care, but it does increase the probability that people will seek care and follow through on care plans.
The key takeaway from the report is that aggregate spending is not a standalone scorecard, and that the increase in spending can be attributed to two different realities: a system that is becoming wasteful or a system that is removing barriers and meeting previously unmet needs. To understand the true impact of healthcare spending, it is essential to examine the compositional changes in care, such as the types of services being utilized, the quality of care, and the outcomes achieved.
Innovations that make healthcare easier, such as automation, AI-enabled workflow, and virtual-first access, can have unpredictable fiscal signatures, reducing the cost of an encounter while increasing the number of encounters. Therefore, it is crucial to consider potential outcomes more broadly and carefully before reacting with austerity measures. The Jevons paradox suggests that we should expect utilization to respond to improvements in efficiency, and that spending numbers should be read as a map of shifting demand, rather than a simple verdict on whether the system is “working.” Ultimately, the US healthcare system is exceptionally good at turning access, coverage, and innovation into utilization, and the NHE 2024 release is a reminder that making care easier will lead to increased use.