I didn’t want to let this get away without commenting on it and a hat tip to Megan McArdle at Bloomberg for the graph above, the data for which are from the Bureau of Economic Analysis. The graph depicts the quarter on quarter changes in real healthcare spending from 1999 to 2013.
You may have heard that the rate at which healthcare costs have been increasing has been going down. That’s illustrated in this graph by the general downward trend from 2001 to 2012 (when you average the changes over the year for 2011 the overall trend is still slightly downwards despite the slight spike). However, that trend may have ended as illustrated by the spike in the third quarter of 2013, the highest rate of increase since the second quarter of 2004.
I think there are several things to keep in mind.
- As depicted these data are very noisy—there’s lots of up and down motion.
- Since June of 2012 the rate of change in spending has increased fairly sharply.
- This charge does not depict expenditures. It depicts the rate of change in real expenditures.
- Real expenditures are going up and they have been going up for decades.
- No one knows why expenditures have started going up again just as no one knows why they went down. No one knows if the recent increase in spending is a fluke or part of a trend.
- The CBO, etc. found that the slowing in the rate of change in spending could not be attributed to the PPACA.
- Real spending on healthcare is increasing, it’s increasing faster than incomes or non-healthcare spending, and that’s been going on for decades. That’s illustrated by the two quarters over the period of the last 14 years in which spending did not increase. That’s only two quarters out of more than 50.
- I really wish the graph went back another thirty years. If it did, what you’d see is very sharp increases from 1965 to 1980 with the rate of increase moderating considerably after that, roughly to what it is now. You would also see that the pattern is cyclical, i.e. they go up for a while, then they slow, they they go up for a while, and the pattern repeats.
This graph reflects intentional behavior. By that I mean that it’s not like weather patterns, the tides, or the motions of the planets. It’s more like a fencing match. Incentives matter. Different people engage in different behaviors and the net effect is what you see in a graph like the one above. Healthcare providers respond to changes in government policy. Individuals respond to changes in costs. Policymakers respond to political pressure.
Fron the President’s Council of Economic Advisors, also using data from the Bureau of Economic Analysis, here’s a graph illustrating the growth in healthcare spending with a longer time horizon:
The portion at the far right of the graph, roughly from the 2002 spike to the present, illustrates the same data as are in the graph at the top of the page. As you can see typical growth rates in healthcare spending over the period have been at around 6%, with slower growth since about 2006. Remember, both of these graphs depict the rate of increase rather than just plain old expenditures.
Note that this chart completely bears out the thumbnail analysis I made in the body of the post:
very sharp increases from 1965 to 1980 with the rate of increase moderating considerably after that, roughly to what it is now. You would also see that the pattern is cyclical