Healthcare Demand Part 2: Secular Headwinds


We frame real growth in US healthcare demand as the simple product of: growth in persons, growth in per capita utilization, and growth in price. Our ‘baseline’ estimate of real demand growth, defined as the rate of growth one would expect in the absence of secular, cyclical, or reform effects, is 4.8%; this consists of 80bp of population growth, 2.8% growth in per capita utilization, and 1.2% real price growth

The 2.8% baseline estimate of per capita utilization growth breaks down further into 70bp of aging effect, with the balance split evenly between per capita intensity (units of care), and per capita mix (technical sophistication of a unit of care)

We anticipate three secular headwinds that in aggregate reduce baseline demand growth by approximately 90bp; all of these effects fall into the category of growth in per capita utilization

Health cost growth in excess of wage growth has driven employees to either refuse employer-sponsored insurance, or to choose cheaper forms of insurance. We expect these two secular effects to continue; together these reduce baseline demand growth by approximately 35bp

Declining real growth in R&D spending must reduce the contribution of mix to real demand growth, unless R&D productivity is rising. If anything R&D productivity appears to be falling, increasing the likelihood that innovation will contribute less to future growth. On a trailing basis, mix growth accounts for roughly 1.1% annual growth in real per capita demand; we expect this rate to fall by at least half, or 55bp

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