In a world that offers precious little in the way of good news these days, a ray of sunshine has broken through the clouds: Health care costs, which have relentlessly outpaced the general cost of living for decades now, appear to be moderating.
After exploding by an average of 9.7% annually through the 2000s, Medicare spending is rising at a rate of less than 4%, according to Maggie Mahar, a blogger for the Century Foundation, a left-of-center think tank. The marked slowdown has been in evidence for 18 months now, she says.
The logical question is this: Does this represent a temporary blip in health care inflation or is it the result of fundamental changes in the health care sector? Mahar makes the argument that it may represent a fundamental shift. She doesn’t credit Obamacare directly, for its major cost-saving measures are not scheduled to go into effect until 2014. But she quotes former White House health care adviser Dr. Zeke Emanuel as attributing the slowdown to providers anticipating Obamacare. Writes Mahar:
In the past, Medicare has rewarded providers for “Volume,” by paying them fee-for-service. But the Affordable Care Act contains financial carrots and sticks that reward doctors and hospitals for “Value”– better outcomes at a lower price–while penalizing those that “do more” without improving patient outcomes. “Either we get volume under control, or prices paid both by private insurers and by Medicare will drop,” says Emanuel. “Hospitals know this. This is why they want to make their systems more efficient.”
Interesting theory. My initial reaction is to be skeptical. First, it strikes me as wishful thinking by defenders of the leviathan state. Second, it seems to be at odds with the data in the chart above published by lefty health care economist Uwe Reinhardt. And third, the explanation for moderating costs, if costs truly are moderating, could just as likely be a general decline in the medical-care demand curve brought on by the the recession and slow recovery. But I don’t have the data at the moment to comment one way or another.
Whatever the explanation, the trend bears watching. I want to believe! Out-of-control health care inflation lies at the heart of long-term projections showing the U.S. heading toward a Boomergeddon scenario. If the Medicare spending per patient stays subdued, Uncle Sam has more breathing room than I thought to get federal finances in order. As a bonus, the presumed spillover to Medicaid will take a lot of pressure off Virginia’s state budgets.
I’ll start asking my contacts in the health care sector what they think and report back to you.
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