The End of the Health Care Bubble
Jun 19th 2013 10:02AM
Updated Jun 20th 2013 10:35AM
Never underestimate the power of dwelling on the past while the present changes before your eyes.
There have been 2,470 mentions of the phrase "spiraling health care costs" in the media over the last year, according to Google. But as investor Eddy Elfenbein points out, medical costs are doing anything but spiraling. "Healthcare costs have outrun the cost of everything else for decades," he writes. "Suddenly, that trend has come to an end. Over the last year, healthcare costs have actually trailed broader consumer prices."
The year-over-year change in the medical care portion of the Consumer Price Index is now at the lowest level in 40 years:
Or as Eddy points out, medical care is growing slower than core inflation for the first time in decades:
Annie Lowrey of The New York Times cites different data that shows the same trend:
Between 2009 and 2011, total health spending grew at the lowest annual pace in the last five decades, at just 3.9 percent a year ... In contrast, between 2000 and 2007, those annual growth figures ranged between 6.2 and 9.7 percent.
We've known about this slowdown for years, but it's always been a question of whether it's a blip or a structural shift. It's now looking more and more like the latter. The slowdown is occurring in regions that didn't get hit hard by the recession. It's occurring in Medicare. And it's occurring among different age groups and health ailments. It's more than the just a poor economy slowing things down. Patients and doctors are changing the way they think about demanding and delivering medical care.
If the trend holds, two important things happen:
1. You might get a raise. Most of the compensation growth in recent decades came in the form of employers covering higher health insurance premiums. Slower health care growth gives employers more room to raise wages.
2. Budgets heal. The nation's current budget deficit is overwhelmingly due to the recession, while long-term deficit projections are all about health care costs. But now that health care costs are coming in much lower than anyone expected, deficit projections may turn out unduly pessimistic.
Eddy called this data "The Most Important Economic Chart in the World." I don't think that's an exaggeration.
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