That’s the question Robert Samuelson asks in his most recent Washington Post column:
In today’s contentious political climate, when hardly anyone agrees on anything, here’s a rare subject of consensus: Health spending is slowing, and almost everyone thinks that’s a good thing. Aside from relieving pressures on federal and state budgets, it could help reverse stagnant wages by moderating the cost of employer-paid insurance. Compensation would shift from insurance to wages. What the experts don’t agree on is who (or what) caused the slowdown and whether it will continue.
First, the basic figures. In each of 2009, 2010 and 2011, U.S. health spending increased a modest 3.9 percent, virtually identical with the slow growth of the economy (gross domestic product, or GDP). So health spending remained steady at 17.9 percent of GDP after years of increases. Almost no one predicted this.
There are practically as many answers to this question as there are people answering it. The Obama Administration and its staunch supporters, as you might expect, say that, of course, it’s ObamaCare. Others, like Samuelson, are skeptical. Explanations that have been offered include the recession and “structural changes”, e.g. use of less-expensive generic drugs, higher patient co-payments and deductibles, and lower administrative costs in doctors’ offices and hospitals.
I would also suggest that very slow increases in the Medicare reimbursement rate, the recession, and the higher patient co-pays and deductibles work synergistically to reduce the ability of providers to pass cost increases along which in turn incentivizes a search for ways to lower administrative costs, etc.
Some of the slowing may merely be a mathematical artifact. Healthcare spending continues to rise but as healthcare becomes a larger proportion of the economy the gap between the general rate of inflation and the rate of increase in healthcare costs narrows. With healthcare spending at 100% of the economy the two would be identical by definition.
In the final analysis Mr. Samuelson offers no answer in which we can have any confidence. Nobody knows. I do think it’s too early to declare victory.
Well, I’m a staunch Obamacare supporter and I can’t credit it for causing effects prior to its own existence. I’m sure there are many interesting provisions in the law, but I don’t time travel is one of them.
Maybe you’re just not staunch enough, Michael. 😉
Keep in mind that back in 2009 there were people attributing the end of the recession to the ARRA before a penny had been spent. Now that’s staunch.
My reynolds skepticism trumps my Obamacare skepticism, I think Obamacare could change behavior once signed into law. Businesses make decisions based upon future expectations. I don’t have any idea whether or not that happened here, but it wouldn’t take a time machine for a business to read a signed law and start making some decisions in light of it.
“I would also suggest that very slow increases in the Medicare reimbursement rate, the recession, and the higher patient co-pays and deductibles work synergistically to reduce the ability of providers to pass cost increases along which in turn incentivizes a search for ways to lower administrative costs, etc.”
I would suggest its the dominant variable. Exposure of the consumer to economic reality. A point I’ve been making for, oh, 5 years here.
That closes in on the point I was making. It’s not just the consumer that must be exposed to economic reality but the supplier as well.
It’s not just the consumer that must be exposed to economic reality but the supplier as well.
Absolutely! Genuine savings is a joint effort. Such a joint effort can also be applied to other facets of our fiscal problems and looming deficits/debt, outside of just healthcare. What about a broader tax base, too.
I’m with Dave – my health care spending is influenced very heavily by co-pays and deductibles which are currently much higher than they used to be.
“That closes in on the point I was making. It’s not just the consumer that must be exposed to economic reality but the supplier as well.”
Of course. Any transaction has a buyer and seller. But since the seller by definition will attempt maximize return to the transaction, the governor on the transaction price is the buyer, in the absence of monopoly power or third party subsidy. Since escalating health care costs seem to have a cancerous effect on so many aspects of current life the sooner we expose the buyer, and therefore supplier, to this governor the better. Its Econ 101; health care is not a unique good. ObamaCare will do no such thing.
Having just gone to 3 colleges with my daughter and inspected the costs………next, education costs.
Random thought from a pub in Vegas: has anyone looked at dentistry as a proxy for medical costs? It’s much less influenced by government or insurance, much more of a free market. So has it become more or less efficient?
And now, back to my Chimay blue and lobster roll
Over the period of the last twenty or so years the practice of dentistry has changed so much as to be hardly recognizeable. Most dentists these days are managers and much of the work that was done by dentists in days gone by is now done by hygienists. Dentists frequently employ multiple hygienists, inspecting their work when they’re done.
There’s been some movement in that direction by physicians but I think rather less.
Personal example on healthcare:
My wife’s employers over the last few years have greatly increased the costs to their employees. This last enrollment period (in April of this year – the plan year starts on June 1 for some odd reason) we were forced out of the old plan and onto a high deductible plan: We’re paying the same amount as last year but getting a lot less from the employer. As a result,my wife has cancelled some of her medications. The choice is high blood pressure or eating. So our healthcare spend is down. Yay Obama, good work reducing those costs! And cheers to all those Obama voters for making it happen!
When my wife has the inevitable stroke or heart attack, I’ll remember who I’m thanking now.
Your example highlights another point I’ve made here from time to time: cost reduction by economizing (i.e. using market forces), whether by producers or consumers, does not necessarily result in improved health outcomes.