Putting the brakes on health care costs

Spent so much time today dealing with Blue Cross’s ill-conceived mandatory drug mail order program that I ran out of time to blog. So I’ll just point to a New York Times piece (Slower growth of health costs eases budget deficit), which reports that Medicare and Medicaid spending are growing more slowly than projected. Since the growth of those programs is the biggest contributor to the long-term budget deficit, that’s good news for the nation’s fiscal health.

Whether it’s the Affordable Care Act or broader changes in health care delivery and financing, the ship is finally starting to turn. Notably, though, even if the growth of health care costs just matches overall economic growth there will still be a budget pinch, albeit a less painful one.

Although it may seem farfetched, there’s actually no reason to believe that health care has to grow as fast as the economy over the long term. There is so much inefficiency and sheer waste in the system that health care spending could actually drop over time if the system transforms sufficiently. And that may be the big shocker of the 2020s –that health care costs start dropping and the US’s fiscal outlook improves dramatically.

Health care represents a much lower percentage of GDP in other advanced countries than the US. Although that situation can persist for a long time eventually I expect to see some convergence.

February 12, 2013

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