Something unexpected is happening with the cost of health care in the U.S.: the cost of health care is rising at a much slower rate than it has been! Reuters reports:
The U.S. Centers for Medicare and Medicaid Services said healthcare spending will rise about 4 percent a year between now and 2014, when President Barack Obama’s reform law takes full effect and provides coverage to more than 30 million uninsured Americans.
That compares with an average annual rate of 6.8 percent for the last decade.
But it’s not “ObamaCare” that deserves the credit. Reuters continues:
It reflects a modest economic recovery and a trend among employers to shift more insurance costs onto their workers through high deductibles, said the report, published by the journal Health Affairs.
“We attribute a lot of this to the lingering effects of the recession and also the modest recovery after the recession, with the effect that consumers are being cautious about using healthcare goods and services,” said Sean Keehan, senior economist at CMS, which is part of the Department of Health and Human Services.
By shifting just a portion of the cost of providing health insurance to their employees, who are the actual consumers of health insurance, employers are removing some of the insulation that has long prevented their employees from genuinely feeling the true cost of their health insurance coverage.
Now exposed to a larger portion of those costs with moderately higher deductibles, employees are responding by acting more like real consumers – seeking care when they actually need it and becoming more cautious shoppers for medical services.
In response, health providers have reduced the rates at which they have been increasing their prices, responding to the lower demand for their services, even as the very large Baby Boom generation reaches their peak medical service consumption years at the end of their working careers!
That same lesson can be applied to Medicare, which covers 100% of the hospitalization costs for the program’s beneficiaries and 75% of the cost of additional health insurance. That’s a lot of subsidized insulation, with the consequence being that it supports a much faster rate of growth of health costs than might otherwise be seen if it were more tightly linked to the rate of growth of the incomes of the people who actually pay for it.
As things stand today, there is far too great a disconnect between the two.
As the article notes, those costs have been rising at a rate of 6.8% per year over the last decade. That means that these costs have nearly doubled in that time, even though the average income in the U.S. has not, rising at just less than 1/3 of that rate.
Health care can only be affordable if its cost is closely coupled with the incomes of the people who pay for it. The administrators of Medicare would do well to follow the example of the private sector in the U.S.