Health spending growth has slowed: does Obamacare deserve a victory lap?

The relentless rise in health care spending is slowing. In 2012, costs rose by only 3.7% compared to about 8% in the early 2000s.

The slower spending growth caused health care’s share of the overall economy to take a slight but unusual dip from 17.3% to 17.2%. 2012 was the fourth consecutive year of unprecedented moderation in cost growth and only the third year in the past 15 when inflation in health care was lower than in the rest of the economy.

What deserves the credit? The administration has claimed that cost control initiatives in the Affordable Care are responsible. The law was passed in 2010, and parts of it began taking effect soon thereafter. This was just as the spending slowdown was gaining momentum. It’s not just the administration that feels this way. Some private analysts concur.

Others see the effects of underlying structural changes in American health care. Insurers are implementing more vigorous cost control measures, physicians are becoming more cost conscious, and high-deductible plans are making patients more sensitive to the cost of care.

But two recent reports point to a simpler explanation – the recent recession. Research published in the latest issue of the journal Health Affairs found that the economic slowdown accounted for 70% of the moderation in health care spending. And an analysis by the nonprofit Brookings Institution concluded that health care costs respond to changes in the gross domestic product with a time delay. The recent slowing, therefore, resulted from the recessions of the 2000s.

The last explanation is the most discouraging. It means that when the economy fully rebounds, health care inflation will follow close behind. In other words, the underlying cost curve remains unbent.

But it is too early to tell. The Obamacare cost control initiatives, like accountable care organizations and new rules for Medicare payments to hospitals, are still quite recent. And many observers believe that underlying structural changes in health care are just beginning to pick up steam. They may yet turn out to be effective.

So for now, it is too early for Obamacare to take a victory lap on cost control. But that doesn’t mean it won’t have earned one down the road.


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