More on the cost problem

Via Jeffrey Sachs, here we have an article in the Wall Street Journal by AEI’s J.D. Kleine arguing that health care inflation isn’t such a big problem:

New data show that health spending over the past several years has been normalizing toward the rate of general inflation, rather than growing higher and higher, as had been the case almost continuously since the 1970s. This moderation in the growth rate of spending predates the national recession. And it puts the lie to the claim that we need government to put the brakes on an "out-of-control" health-care system.

He goes on to explain it’s because of the technology (generics, among other things) and the management (more patient choice, and “other disciplining forces, like the nonprofit National Committee for Quality Assurance, which measures and reports to employers and other buyers of health care on how well insurers' provider networks manage chronic disease and practice preventive medicine.”)

Can we see this in the data? The WSJ provides a chart that shows the health care inflation rate (which had indeed fallen over the aughts), but crucially does not compare it to the general inflation rate. Fortunately for us we have the St. Louis Fed’s FRED service, with which I made this graph (blue is health care; red is CPI, i.e. general inflation):

I would describe it as “unclear” at best that the health care inflation rate has converged with the CPI.

Consequently, many of his specific claims seem to run into some trouble—for lack of data, or for lack of logic. Take quality. It’s hard to agree on what the quality metrics ought to be, but if you look at the data on hospital errors, it’s pretty clear that there’s quite a big problem in terms of mistakes made. Are patients choosing more? Certainly the HSA and/or high-deductible model has been extended more, but people debate whether that’s actually a good thing to this day.

So while optimism is appreciated, who knows whether it’s correct yet. Sachs, in the original article, stated that he is not prepared to mechanically extrapolate the inflation data out to 2085. This seems more than fair. Nevertheless, looking at the data above, we can see that, aside from recessions and their occasionally-sluggish recoveries, the inflation rate in health care has rarely dipped below 4 percent. So it would seem likely that we need to figure something out.