August 08, 2013
Robert Samuelson’s column today notes the sharp slowdown in health care cost growth over the last 5 years and discusses the extent to which it can be attributed to the Affordable Care Act (ACA). He is rightly skeptical of claims that the ACA has been a major factor in the slowdown since it preceded the passage of the Act and we still have not seen most of its provisions put into effect.
However, at the end of the piece Samuelson gives three reasons why costs are likely to increase going forward. One of the reasons, that Obamacare will increase insurance coverage and therefore demand for services, is plausible. The other two are considerably less so.
He argues that economic recovery is likely to increase the demand for services and therefore push up costs. This would be true if there were reason to believe that the pace of recovery is about to accelerate sharply. While most forecasts project that growth will be somewhat more rapid in 2014 and 2015 than in the last three years, it is unlikely that this difference would have very much effect on prices.
The third reason is that the population is aging. Samuelson tells readers:
“average health costs for those 65 and over are more than triple those for people ages 25 to 44.”
While this is true, people do not jump from being 44 to age 65. Furthermore, the average for the older group includes many people in their 80s and 90s with very high costs. It takes a long time for someone age 44 to become 80. In reality the impact of aging on health care costs is gradual and we are seeing it now as the baby boomers move into their 50s and 60s, periods in which they have higher costs than when they were in their 40s.
This process has been imposing upward pressure on health care costs for the last decade or more. The impact over the next 5 years will not be much different than it was over the last 5 years.
It is worth noting that there are huge potential savings from increased trade in medical services. However this is almost never mentioned in policy debates because American politics is dominated by hardcore protectionists.
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