The Good News About Healthcare Costs

Jim Jaffe


From PunditWire:


If the good news we’ve been hearing about American health costs in the past few months turns out to be the new norm – it’s too early to tell – then much of today’s political debate is wildly misguided.  Consultants predict 2014 will see abnormally low inflation, again.  Medicare spending per beneficiary is dropping more than previously anticipated.  And new tools provided by Obamacare to constrain costs could accelerate these trends.


If these trends are more than a benign anomaly, they would not only ease pressure on the Medicare budget, but would moderate government health spending generally, a development that could vaporize concerns about the growing cost of entitlement programs.  As analysts of all political stripes have been saying, America’s government doesn’t have a spending problem; it has a health spending problem.  Find a way to control health costs and those scary graphs of projected uncontrolled government spending are replaced by lines reflecting tolerable, incremental growth.


But wait, as they say on late-night television, there’s more.  Ballooning insurance costs in the past decade have sucked up money employers otherwise would have spent on pay hikes.  So a moderation of medical costs could ease the wage stagnation problem.

Of course, here in wonkworld, it’s a given that no news, even the contrarian trend just described, is totally good news.  In fact, we’d be confronted with a new set of problems.  There’s a direct link between medical costs and the amount of care delivered.  If costs are moderating, that suggests – and there’s confirming data – that people are getting less care. This is a reduction experts have long agreed needn’t jeopardize health status (in fact, there’s long been a broad consensus that Medicare costs and services could be reduced by at least 20% without compromising care although there’s inevitably less agreement on precisely which cuts to make).


Less care means fewer hospital days (hospitalization has been declining for decades) and fewer jobs in the health sphere, a sector that is the largest employer in many of America’s older cities and a major provider of good jobs at good wages for workers with modest educational attainments.  During the recent Great Recession, health was one of the few areas of steady employment.



It is hard to believe that the health spending problem may be close to resolution – and indeed it may not be. We’ve had false Springs in the past, most notably in the 1990s when costs moderated in response to the threat of Clinton health reforms and the wary introduction of managed care.  They later made up for lost time.


On the other hand, it is important to bring a sense of balance to current budget debates by recalling that the nation’s budget was not only balanced at the turn of the century, but creating a big enough surplus to fuel suggestions that the entire debt be retired within a decade.  Sadly that didn’t happen, but an acknowledgement that it could have serves as a reminder of how quickly things can turn around and seemingly intractable problems be resolved. 

Author Bio:

For 16 years, Jim Jaffe  worked for House Democrats who served on the Ways and Means Committee, apprenticing with Representatives Green, Gibbons and Gephardt before working for Chairman Dan Rostenkowski.



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