The continued bending of the health care cost curve?

Peter Orszag: We have had incredibly good news over the past three to five years. If I’d been told when I was director of either CBO or OMB that we would have a 12-month period when Medicare spending was basically flat in nominal terms — and therefore on an inflation-adjusted, per-beneficiary basis, significantly negative — I would have thought impossible and yet that’s exactly what we’re living through.

If this continues, it’s massive — everything you think you know about the nation’s long-term fiscal gap would be wrong.

That is from Vox, there is more here.  Note that since Medicare spending is slowing down too, this phenomenon probably is not just from slow economic growth.  From Wonkblog (don’t get confused) here is further commentary, arguing the fiscal gap still will be a problem.


Peter Orszag, CBO chief as I recall, possibly a perennial optimist. Peterson Institute is a more sober source for fiscal pessimism. As for flat health care costs, one swallow does not a summer make, as Aristotle said, and anyway compared to the Philippines, where an CAT and 3-D ultrasound costs $25-$50, and doctors make house calls for about $50 (up from the $12 clinic visit), I think healthcare costs are still too high in the USA.

Significantly higher levels of immigration - nurses and homecare workers from less developed countries. Could REALLY help bend the cost curve in the US. Another benefit of Open Borders.

That and the old fashion shell game of cost shifting. Jacking up my premiums is never included in their measures. Increasing wait times for visits are never added into the mix. Basically, Orzag is just the most recent Dorothy Martin, a phenomenon that will always be with us.

Wait times is a problem where the solution is more cheap but effective workers. Good thing there's a giant machine producing them just south of the border!

God you are a bore.

My premiums have gone up. My co-pays have gone up. My paperwork requirements have increased. My deductibles have gone up. My wait times have gone up. And my selection of doctors and clinics and hospitals have gone down.

Thank God we have Orszag and Krugman and the NYT to tell us everything is wonderful. Otherwise no one would know.

I'm sure none of that happened pre-ACA. Purely a brand new phenomenon, yes?

A foundation myth of modern lunacy is that hiding costs makes them go away. You and I paying more for less does not show up in the lunatic accounting so they magically made those costs disappear!

I mentioned my latest cancellation letter to a lunatic I know and she said, "everyone I know who had to buy a new policy saved money and got a better policy." Somewhere in Hell, Pauline Kael is laughing.

Hopefully, you'll join her real soon and we can be spared your wingnuttery.

I have had the exact opposite happen. Paperwork down, deductibles down, co-pays down, premiums down, and best of all my insurance is something that will actually cover things now.

I am on the individual market and before 2014 I was often denied coverage due to a gap in coverage I had from years back.

One of the best things is that the doctors I see today, as compared to just a few years ago, are way more efficient and actually use electronic medical records and will make specific references to past visits that really do help. I have been very impressed with recent improvements in my medical care (probably little to do with ACA, but I don't think it hurt) and think that overall US healthcare system is on the right track.

In the stimulus act around 40bn was used to expand computerized records and use in the health care sector. RAND found that a total adoption of computerized records could save upwards to 220-300bn a year and studies find that computerized records reduce medical errors by 50-60%.
So although it wasn't the ACA it was other legislation passed by democrats and obama and opposed by republicans

---My premiums have gone up. My co-pays have gone up. My paperwork requirements have increased. My deductibles have gone up. My wait times have gone up. And my selection of doctors and clinics and hospitals have gone down.

Think of how much more your costs would have gone up without the cost cutting measures enacted by obamacare (such as bundled payments, a cap on non medical related expenses, ending the dentist monopoly on teeth cleaning etc etc) or how much more paperwork you would have without Obamacare expanding the use of electronic funds transfers and simplified eligibility rules and claims transactions. Think of how tougher it would be to find a doctor without obamacare dedicating funds to expand and train new docters.

Yawn, wait times seem to me to be more a function of the way a particular doctor's office or medical center is run rather than some plot by gov't and insurance companies to hide costs....and unfortunately I've been dealing with all types of doctors from GP's to Oncologists.

Your premiums are not a function of Medicare or Medicaid costs. If their cost per patient is falling or staying more or less stable it's because those pools of people are either using less healthcare or are spending less to get the healthcare they receive. Spin it however you want that's a good thing and totally opposite what critics of the ACA promised us would happen.

--Jacking up my premiums is never included in their measures. ---
Usually because they are looking at data not some anecdote from a right winger on a blog. Learn the difference then maybe you wont feel so entitled and think that government policy should be about just you.

One hopes that responding to the commentor does not lead to data purgatory, but this is a point that Dean Baker really hammers on, especially in regards to 'free trade' agreements never seem to actually create the ability for America's 'free trade' partners have their own lower paid but equally qualified medical professionals be allowed to compete against over priced American incumbents.

In other words, regardless of how seriously looks at the commentor's comments, in this case, what is written reflects a long held position of an economist that most decidedly does not belong to the self-described libertarian economist club and its various trappings.

That's MR. Commentor to you!

But I will only say 'sir' to the Commodore.

I say! Show the man some respect or I shall sail my Flagship up the Neckar and greet you with a volley of gapshot!

'shall sail my Flagship up the Neckar'

Be my guest, Commodore, sir. And you will hear the dulcet tones of some Badnerlied lyrics that tend to be added as the occasion requires -

'In Konstanz fließt der Rhein noch blau,
In Mannheim wird er grau,
Da fließt der dreckig Neckar rein,
Die alte Schwabensau.'

No. Orszag was the "healthcare is going to eat this country" doomsday pessimist while at CBO.

Healthcare is going to eat the surplus. That is how he gets it wrong coming and going.

You don't know what you're talking and your comment makes no sense. Troll better.

My comment makes total sense.

Think harder.

I'll stick to analyzing Orzsag's comments, you stick to fantasy.

One small element that gets little attention is digitization and outsourcing. If you file a complaint with your insurer or HMO challenging denial of coverage, the nurse doing the internal review is likely to be in Manila.

Digitization is what my proctologist charges me for.

If your doctor tells you he is going for a digitized medical record don't turn your back on him.

His name is *cough* Dr. Ben Dover.

Try the veal.

Bigger savings when insurers start offering patients the choice to get flown abroad to some sunny locale for cataracts, hysterectomies & knee replacements.

Woodwork effect.

Why should this generate savings? Imagine an auto dealership worked like that. "No sir, makes more sense for us to fly your car to South Asia to have a new timing belt put on".

This only makes sense if timing belts are very cheap over there or labor is very cheap over there. For health care then you're implying that health care professionals are overpaid in the US. In that case you can either pay them less or increase their productivity by having them service more patients per unit of time.

Boonton, this is so obvious as to be tautological. There's no question doctors are paid far more in the US than they are elsewhere. But it's pretty easy for non-doctors to say 'oh just pay those guys less', and it's not surprising how hard the AMA fights that. But that's a BIG part of the cost differential here in the US. Medical labor and other costs IS very cheap 'over there'.

Rahul's comment is a good one, people do medical tourism all the time. I wonder what happens first, insurers start paying for procedures abroad or US docs start making less (due to perhaps more docs being allowed to immigrate or by allowing more stuff to be handled by robots and nurses or by fiat or whatever). I feel like at least one of those has to happen.

The AMA doesn't set doctor pay and it's not like anyone stands around saying "ohhh you want to cut my pay, well ok do it I won't put up a fight".

But there are some problems with this view of just flying everyone off to Vietnam for knee replacements:

1. This seems to make sense for isolated, contained procedures. If all you need is, say, a nose job then go with the cheapest guy who does a good job. I think a lot of medical costs are being driven by ongoing, chronic conditions that entail a lot of time and cross specialists. For example, dealing with arthritis and diabetes or cancer. These combo problems are not solved by a low cost, one week, flight to get a procedure done cheap.

2. A lot of this can be done in the US cheaply with the right reimbursement structure. My wife had knee surgery in the US for less than $5K. That's less than $5K when you look carefully at what the center wanted to bill the insurance versus what the insurance actually pays. The surgerical center achieves this low cost not so much by paying the doctor less but by volumne. Every day they keep the rooms buzzing with patients. Considering that airfare and hotel flying around the world would be an immediate $5K 'tax' on any attempt to get health care cheap, how would that make sense?

3. Jurisdiction is a hidden tax here. Go to Vietnam for your knee surgery, tell me how do you sue if the doctor botches it? Or even how do you follow up if he screws you up badly? I'm all rah rah for globalization but the fact is I'll buy my dog food from Wal-Mart and not directly from China. If they sell poisen to me, I'll sue Wal-Mart while I have no idea how I would even begin to sue a Chinese company in China (if that's even possible).

I think medical tourism will grow but in terms of US health care costs it's going to be a trivial affair. More relevant might be outsourcing health care services (say having doctors in India review lab results for a US hospital over high speed internet conferences).

1. Fair enough, but I think there are plenty of one-off procedures you could go abroad for, and if insurers start paying for them maybe prices come down in the US to match?

2. Agreed there needs to be incentives for US providers to do more for less. But again, there are other doctors in cheaper countries.

3. Of course that's a risk, but AFAIK the various hospitals that compete for US business are well aware of the malpractice worry and surely show their success rates to entice customers. If US insurers got on board that would be even more scrutinized, and then you have the insurer to sue. The insurer does the due diligence, they save money hiring just as good doctors abroad, the only losers are the US docs who charge too much. Which is why the AMA fights this.

#1 One off procedures, though, are subject to be done on US soil by places that specialize in them hence getting at the lower cost by simply doing lots of one thing. I believe I read that Texas has a hospital that just specializes in live births. They do dozens every day and that means they are lower cost per birth and they get better results due to their insitutional expertise.

#2 I think we agree here.

#3 I think this would depend on just why are costs lower in the overseas country. With China and dog food I can tell you, part of it may be economies of scale but a larger part is almost certainly skimping on quality and worker pay. From the insurance company's view they have to pay for both airfare and accomodations (easily $2K-$10K). Then if they have to vouch for the quality you may discover the difference in cost becomes a lot less dramatic.

I had a co-worker who was upset he was paying $700 or so for a root canal. He swore if he was back home in China he would simply spend $100 for an implant to replace the entire tooth....something that would set him back $1000-$1500 in the US. Between that gap, though, the potential for savings disappears fast once you get the airline, hotel, and so on into the mix. Of course he was Chinese so he had occassion to travel to China for other reasons so could take advantage of his local knowledge for cheap dental care.

But that's not really 'medical tourism' which implies travel just for the purpose of getting treatment. In that case I think the reality is the US receives a lot more medical tourism than it sends out and will continue to do so far into the future.

#3. I'm suggesting you continue buying dog food from Wal-Mart & not directly.

So also, you contract with your American insurer and not with a Chinese hospital. He sends you to China. I'm sure you can structure the contract such that in case of a fuck-up you sue your insurer & in US jurisdiction.

And how much of the difference in cost is due to covering liability? If you elect to go to Vietnam to have a surgery done, who do you hold responsible and what legal recourse do you have if there is a medical error?

Yes, I'm saying both timing belts & labor are very cheap in alternative locales.

How to talk about sovaldi without talking about sovaldi.

Yup, I've been to a number of events about drug prices (Sovaldi, really) the past couple months. Nobody and I mean nobody has any answers.

Drugs have been a happy, quiet little part of hc spending for years now, averaging about 10% of costs. With drug companies actually starting to innovate again and many of those therapies coming in the form of biologics that will not suffer the same level of generic price competition (and which will only be challenged after much longer brand exclusivity than traditional drugs, under law--thanks Congress), and with many of those products costing tens of thousands per year, and with no rational way for Medicare to assess the value of drugs to make coverage decisions, and with the boomers about sound the wail alarm with any threat to automatic coverage of any drug or procedure, we may well be screwed.

The one answer nobody's lobbying for: Liberalize drug imports.

It's bad policy because it disincentivizes investment in new breakthroughs. People need to pay high drug costs in order to finance investment. The way to continue to bend the cost curve is to increase immigration in order to provide more and cheaper labor for the health care sector.

Drug imports are nonsensical. If you're going that route, just have the government pay lower prices to the drug companies, it amounts to the same thing.

The real cost savings will come when we utilize more low wage immigrants in health services. Things like drug imports or bulk buying are just partisan hackery to distract people from the real (albit unpopular) solutions.

@JAMRC, my mom is temporarily in a 'palliative care' home. The staff is 90% female immigrant.

Every time I go there, I weep a little for the throngs of Americans moving Heaven and Earth for these jobs, only to be aced out by a foreigner.

Other countries know that they are free-riding, and that free-ride would end if they allowed export of their drugs to America.


Why does nobody know this? And why does any sane person suggest that the best solution is to export drugs overseas and then import them back?

Do countries have laws prohibiting drug exports? Which nations?

'And why does any sane person suggest that the best solution is to export drugs overseas and then import them back?'

Um - this may be hard to imagine, but the U.S. is not exactly the world's only manufacturer of drugs.

And though America is home to the two largest pharmaceutical companies, places 3 to 7 are filled with European companies, while of the top 10, 6 are European, and 4 American.

The 'world' is not free riding on America - six of the top ten of the world's largest pharma concerns are happily charging Americans as much as they can get away. Mainly because they are not allowed to gouge like that anywhere else. And anyone who thinks that Roche or GlaxoSmithKline don't spread vast sums of money around in DC to keep Americans drug prices high is probably the sort of person that also easily believes this web site is just a bit of dabbling.

I've said this before, but it seems it must be said again.

The companies may be European, but they plan their drug R&D around profitability found in the US market.

Nobody is saying the US consumer is somehow subsidizing the marginal cost-pricing of the drugs and devices sold in Europe.

But the pace of innovation of drugs and devices in Europe is certainly subsidized by the US consumer.

Except that other advanced developed countries develop the same amount of new drugs per capita as america. Same goes for total new health care related findings or technology.
But do go on telling us that Americans need to pay double the cost that other countries pay for drugs because America ya!!!

The world isn't free-riding on America; America is willingly subsidizing drug research for basically the entire world. Then happily watching as drug profits are shifted to foreign shell corporations. Then waiting until the next time a GOP majority coincides with a recession so that we can have another income-repatriation tax holiday.

In some sense the world always free-rides the elite & the rich. The fixed costs of researching cutting edge technology will be disproportionately borne by those who are early adopters & those whose needs are the most demanding. The funding for the next breakthrough in Alzheimers isn't going to come from a community dying of dysentery.

But there's no reason for the US to make it any harder on itself by banning competition from low cost manufacturers. After all, we didn't have to ban car imports to incentivize Google to develop a self driving car.

I follow pharma-related news for a living, so I've known about Sovaldi for a while, but I found the Sovaldi approval to be one of the most bizarrely under-reported stories in the mainstream media. I only ever saw anything about it in investor publications, and it only really hit the news once the $84,000 price tag started to be felt.But a cure for hep C should be a huge deal! If this had been a cure for, say, AIDS, the response would have been totally different.

BTW I think it is probably right for Congress to tread lightly with respect to biosimilars. The last thing we need is some early biosimilar disaster to make biosimilar approval politically unpalatable from here on out.

My health care costs are going up. Deductable, monthly insurance, and prescriptions are going up while coverage is going down of what I need (while I'm paying for coverage I don't). This appears to be the typical position of most of us. There is not a 'continued bending of the cost curve', and what is happening outside of Medicare is intentionally avoided by Orszag.

The cost of Medicare is flat and with some hand waving outlandish claims are made of what will happen in ten years. Medicare, not health care, costs have leveled.

The surface appearance is that hospitals are getting better at denying care to people using Medicare and setting themselves up for future profit.

Nothing approximately close to 'continued bending of the cost curve'.

The trendline on cost is going up execept if we get really close on a small time frame and ignore all the data points not supporting the conclusion that Vox readers want to read. Come on, Tyler. Would you accept this from one of your students?

Nope. The rate of growth for employer-sponsored health spending declined for years. There is a little bump expected this year, but PWC does not anticipate a return to double digit increases, even with all the expansion under ACA.


Tracking spending tracks consumption, and the common reaction to increased cost is decreased consumption.

Those are some serious elasticities you're positing if you're saying that an increase in prices has resulted in net negative overall in spending. Straight inverse Laffer stuff.

Jan's graph track spending of, not cost to, the individual consumer using employer-based health care.

I didn't say net. I said increased cost leads to decreased consumption.

But the point I was actually attempting to make originally is that decreased spending by Medicare does not equal decrease in cost to the consumer.

Even in the linked article, it says that the providers are losing money. This isn't bending the curve, it is a strategic move by providers to position themselves for greater future profit.

NPW, the same trend is seen on overall health spending, including out of pocket costs.

By that logic any increase in costs will be offset by decreases in utilization, eliminating our health care spending problem. Does not compute.

I think this area is a bit choppy. Medicare, for example, issued a new policy of not reimbursing hospitals for readmissions soon afer major operations (mainly to keep hospitals from sending patients home too early then readmitting them soon after when they come back with infections and other complications). As a result, the post-op infection rate declined leading to lower health care spending. For the sake of argument, let's say Medicare 'paid' for that by paying hospitals more for the operations.

So now the 'price' of the operation appears to have gone up. But total spending is slightly negative because while patients spend more for the operation they are not spending for post-op readmissions. Health care utilization has actually gone down since the ER has fewer people coming to it with post-op infections.

This sounds like a success story, but if you only have access to macro numbers it may look like sky rocketing costs coupled with 'death panels' denying people hospital care.

My health care costs are going up. Deductable, monthly insurance, and prescriptions are going up while coverage is going down of what I need (while I’m paying for coverage I don’t).

1. You no doubt are getting older, which means your health is going down. So how to tease out which health costs are caused by 'costs going up' versus simply the fact that you're not the young person you once were?

2. 'Coverage..of what I need' down versus 'paying for coverage I don't (need)'. I had no car accident in 2013, therefore I didn't 'need' auto insurance. Yet if I could buy auto insurance for only when I 'need' it, no car insurance company could ever stay in business. If you believe that we should have insurance, then you're going to have to believe that one way or the other you are going to pay for 'coverage you don't need'.

The surface appearance is that hospitals are getting better at denying care to people using Medicare and setting themselves up for future profit.

How exactly does that work? Say I run a hospital. I certainly see how I make money with Medicare. Medicare patient comes in, I send a bill out, then the gov't sends me money. How exactly do I make money keeping my bed empty, locking out the Medicare patient?

Of course, a small percentage of the population accounts for a large percentage of total health care spending. Hence, any change in the small percentage has an over-sized effect on total health care spending. Targeting the small percentage with change isn't as difficult as targeting everyone with change. That's why a change in reimbursement for hospital re-admissions can have such a large effect on total health care spending.

Not directed at you, raymond, but this is rationing by the greedy healthcare providers, which is why we need to go single payer like all the other first world countries. We could pay a fraction of the cost for better outcomes like everyone else in the civilized world if we let the central planners ration health care.

After all, the VA did a great job of limiting access from the small percentage of the population that was accounting for a large percentage of total health care spending. And the VA proved that if we'd just ignore the problem, the problem would go away.

We just need to stop re-admitting people. By creating a metric that says that hospitals that have repeat business are crap and therefore deserve to lose money, the technocrats have incentivized the greedy bastards to stop wasting taxpayer money. Cause, you know, incentives matter.

Stupid bastards, these sick people, anyway. Can't get it right the first time. They should do research before hand so they are as knowledgeable as the surgeon. I mean, he's got 4 years as a pre-med, med school, residency, (that's 15+ years of higher education) and however many years on the job. Only people worth helping can catch up on the way to the hospital. Everyone else can wait. Even people on food stamps have iphones, google has everything, no excuses.

For those of you with a broken sarcasm meter, this is sarcasm.

Doctors are exceedingly slow to take up consensus clinical guidelines. Aside from waiting 15 years for things to catch on, the only way to incentivize them to practice in line with evidence is payment policy. They respond to incentives, just like anyone else. No doctor is capable of monitoring and assessing all the latest medical research to ensure he provides care in line with the best evidence. Can't be done.

[I can tell you know a lot about health care.]

How is standard of care developed?

Standards of care are actually just talking points developed by bureaucrats in a government basement with no input from doctors, patients or data. Come on, you KNOW this stuff.

Healthcare costs are correlated to what we can afford. So, to me, he is wrong both coming and going.

His arguement seems to be that:

1) People on Medicare are not cost sensitive like people on employer-sponsored health care

2) Medicare cost are flat,

3) Therefore we have an extra trillion or so.

The claim is that the cost to the consumer is not tied to consumption in Medicare, therefore Medicare cost deltas are a stand in for overall behavior.

Are people actually using a lot less healthcare?

Early examples/pilots have found that Medicares new bundled payment system and it switching to paying based on quality rather then quantity leaks into the private sector. Basically the positive changes Medicare is making will cause the whole system to improve. Once Medicares new payment systems (which early pilots show will result in 5% lower costs, and 13% better health outcomes) it will cause hospitals and health facilities to operate based more on Medciares payment system which will in turn lower costs and improve outcomes for everyone

Here's what mitigates the optimism, for me: We are apparently incapable of explaining or predicting how and why health care costs change. At the moment they're turning out to be lower than we expected. However, because we can't explain why, we shouldn't be any more confident in our ability to predict future health care costs than we were before this recent slowdown. They could slow down even more. Or they could rise steeply. We have no idea.

Welcome to macroeconomics, where the models are only good at predicting the past!

And can't even do that. See yesterday's post about the Great Depression.

Nearly 100 years have passed and major American economic minds can't agree on the cause.

There are plenty of explanations for "why costs are lower then we expected" (though no one can say they explain 100% of the bending cost curve) Those include medicare's fee on hospital readmission, medicares increased bidding, decreases to medicare advantage, the 40bn in the stimulus act that was used to expand computerized health records, ACA regulations expanding electric funds transfers, value based medicine, imposing a medical loss ratio, ACA switching us over to a bundled payment system that is based on quality rather then quantity, ACA subsidies for wellness programs and other programs that save more money then they cost.
Basically the only reason people have no explanation for the lower health care cost increases is because they refuse to give the ACA and other democratic initiatives credit because they are either 1) political hacks 2) ignorant or 3) centrists who cant give it credit because that would make them to liberal.

Interesting. I'd have to see much more on the continued long-term trajectory of health care costs, but for now, it's better news than the alternative.

The cost curve is bending because of those Death Panels that never materialized.

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