Growth in healthcare spending tends to be highly correlated with growth in disposable personal income but with a lag of several years. Recent growth in disposable personal income is expected to affect healthcare spending growth over the next few years.
In 2015 and 2016, consumers experienced a dramatic drop in their disposable personal income’s growth. The effects of this are expected to influence growth in 2019 in the form of a dampening effect on healthcare spending.
Fueled by tax cuts and lower unemployment rates, growth in consumers’ disposable personal income has risen since 2016 and is expected to peak above 5 percent in 2018. The largest impacts will be seen in increased healthcare spending in 2020 and 2021.
Increases in disposable personal income have historically led to healthcare spending increases via increased utilization.
The most substantial healthcare spending changes resulting from this phenomenon tend to occur with a lag of two to three years, according to CMS’ Office of the Actuary. The growth in disposable personal income in 2017 and 2018 is expected to put upward pressure on healthcare spending in 2020.
You can read more about factors affecting the growth of medical cost trend in HRI's report, Medical cost trend: Behind the numbers 2019.