Writing in the Wall Street Journal J. D. Kleinke declares victory in controlling healthcare costs:
Contrary to the perennial doomsaying, the health-care system is—almost in spite of itself—getting better. A generation of breakthrough drugs for chronic disease, mental illness, HIV and cancer were developed in the 1980s and ’90s at great cost. Dozens of these drugs—like Zocor for heart disease or Zyprexa for schizophrenia—are now widely available, many in generic form. There are now countless electronic ways of telling patients about them. And health insurers are driven by their own evolving market disciplines to make sure patients start taking them and keep taking them in the cheapest available versions.
Combine all these new medicines, information channels and business compulsions with the slow, steady transfer of economic responsibility for health care—from corporate and government bureaucrats to consumers and their families—and suddenly health-care starts to look almost like an actual market.
and produces a handy graph illustrating the second derivative changes in the cost of healthcare (the change in the rate of increase). Indeed, the rate at which the cost of healthcare is increasing is lower than it was in 2003.
However, when you look at a longer time horizon, as the graph I’ve reproduced at the top of this post does, a different picture emerges. Mr. Kleinke’s explanation for the decline in the rate of increase is one of the triumph of technology. What I see is somewhat different.
Every so often Congress, like the groundhog, emerges from its troubled slumber, and engages in a spasm of panicked activity, hoping to bring healthcare costs under control. Such spasms took place in the early 1980s, the early 1990s, and we’ve just been through one. Mirabile dictu! Almost as if in reaction to the inevitable threats to take the healthcare system under federal control, the rate of increase subsides.
Mr. Kleinke’s interpretation is one of technology triumphant and he sees something resembling a market emerging in healthcare. I see a fear of regulation and a response that does not suggest market forces so much as the response of a cartel to the fear of losing its prerogatives.
If Mr. Kleinke is correct, we’ll know soon enough. If the increase in healthcare costs remains around the general rate of inflation over a protracted period, say, two or three years, we’ll know a basic change has occurred. If, on the other hand, they begin to increase again, we’ll know it’s business as usual.
I would ask Mr. Kleinke a question. If technological change is introducing market discipline into healthcare, why does that discipline never push the rate of increase below the general rate of inflation? Isn’t that what you’d expect in a market?