The Coming Health Care Inflation

In the real economy, medical costs are on a sharp upswing.

It’s becoming clear that a brief slowing in the pace of healthcare spending was transitory – more a result of one-time factors that tamped down on healthcare demand rather than any secular change in how medical care is being delivered.

It’s important to distinguish between three common but different ways that most commentators try and gauge whether healthcare costs are on the rise. Either by measuring increases in total healthcare spending, measuring the cost of providing health insurance, or calculating the rise in prices charged for actual medical care.

All three measures are rising, and all three are, of course, interrelated.

Yet on a relative basis, the increases in actual medical charges seem to be growing more quickly than the cost of insurance, or measures of total health spending. This suggests that the real underlying inflation in healthcare has yet to be fully felt.

On the issue of total healthcare spending, it appears that the slowing in total healthcare outlays was short lived, and probably a consequence of temporary factors.

For one thing, a slack economy that left consumers with less disposable income also discouraged many people from seeking medical care.

More important were sweeping changes in the structure of health insurance. The widespread and rapid adoption of high-deductible health plans, which had high out-of-pocket limits, discouraged people from seeing their doctors. These high-deductible plans were around before the ACA. But Obamacare made these very skinny kinds of health plans politically fashionable, and as a consequence, far more prevalent. Insurance constructs that started in the Obamacare exchanges have rapidly diffused across the commercial market as carriers standardized around these new schemes.
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