This chart shows net medical care inflation. That is, the amount of medical care inflation above the overall inflation rate:
Adjusted for overall inflation, the price level of medical care dropped 3.5% last year. Since 1995, the cost of medical care has exceeded the inflation rate by an average of only about 1% per year. The era of skyrocketing medical costs has been over for decades.
Oh, come on Kevin. This post is totally misleading. Surely you understand that medical costs didn’t fall last year. It’s just that they didn’t increase to the same crazy extent that the costs of all kinds of goods rose last year. Tthe rate of inflation of medical costs probably is pretty similar to prior years; it’s the rate of inflation of other stuff that’s out of whack.
Lots of old people died… more than normal. someone paid for that. lots of people didn’t get some marginally necessary treatment?
If they die quickly, perversely, it may be a savings.
Also, squinting at the chart it looks like the trend-line is at about 1.2% for about 26 years. That amounts to an increase over general inflation of 36% over the period.
Yes. I have an issue with that. I can't think of any reason why excess inflation of health care costs should be tolerable into the indefinite future. It should stop.
+1
Here is another view:
https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/
The pandemic obviously caused a huge decrease in spending. The piece mentions "cancellation of elective procedures" but whatever caused the decrease it wasn't a more efficient system.
This "reply"should have gone in another place.
Thanks for the link. They do seem to have found that health care spending wasn't growing so fast during from 2010 to 2019 as in the past.
My wife is a ER Doctor. She would say, lots of folks, especially early on in Covid, delayed medical services for optional procedures: these type of procedures, say a knee replacement, tend to be very expensive. Thus, did inflation really go down or will these procedures happen over the next year, or two....
What matters in the context of Kevin's data is not if the elective procedures are expensive, it's whether they're a lot more expensive now than they were two years ago for some reason.
The point is that the elective procedures were put off and not charged to the system. Most of these things will be done when the pandemic eases off (if it does) and total expenses will probably go up above average then.
Who says prices are going up?
Know what's cheaper over the last year?
The share price of Facebook.
2/2/21: 267.08
2/2/22: 248.10 (ah)
Down 7.1%
(Zuckerberg or Zucker? Who's having a worse day?)
And the share price of Spotify.
2/2/21: 345.05
2/2/22: 171.54 (ah)
Down 50.3%
With a little help from his friends (Neil Young et al.), Joe Biden is making life a little more affordable every day.
Hmm, inflation is a technical measure that attempts to track changes in price not attributable to changes in quality. Would say expenditures on COVID-19 vaccines not be included in the 2021 medical inflation number because it was a new treatment (i.e. attributable to increased quality)?
Yep. Hard not to say. ACA changed the game. BFD.
If the chart is any indication, “the game” changed a ~decade before ACA.
The era of skyrocketing medical costs has been over for decades.
They may not be "skyrocketing," but if medical costs are indeed increasing faster than inflation, that means procedures and medicines in America continue to grow every more expensive with the passage of time. Not really where we need to be.
Exactly: "Only 1%" adds up over time in exponential fashion. We can only afford this long term if we get 1% in financial savings from improvements in care every year. Do we?
This must be the reason my Medicare Supplement premium went up only 10% last year.
ACA what a joke.
Do you seriously believe your Medicare supplement is in any way governed by ACA???
A large part of medical cost is wages. So this just shows that wages have not (yet) caught up with inflation.
It is important to note that we do not have a repeat of Germany 100 years ago. The inflation rates we have now would have made policy makers happy in the late seventies.
Here is a question: How is healthcare inflation measured?
Normally inflation is measured by having a list of important goods and services that, measuring the price development of each of them and taking an average. Is that what is done for medical inflation it would mean that price changes for every drug or service or test (etc.) would be recorded and then averaged out. It would mean that it does not matter for the result if knee surgeries are used a lot or only a little. If otherwise the figure is total healthcare COST it should not be called "inflation".
I had exactly this question - is this a 'market basket' measure?
And as usual, I would restrict the term 'inflation' for change in the value of a currency. Price increases for goods or services, or categories of same, or sectors of the economy are just price increases. Seems I'm fighting a losing battle on this, though. If I were czar, I would decree that price measures be coded, the way unemployment measures are designated as U1 - U6.
It would mean that it does not matter for the result if knee surgeries are used a lot or only a little.
It's hard to imagine the powers that be who produce the number for US healthcare inflation are that incompetent. If an orphan drug used by 70 patients in the whole country decreases in price by 5%, that surely isn't given as much weight in the calculation as a procedure—say, a colonoscopy—accessed by 4 million.
There is a difference between the COST of healthcare (which is measured by simple addition of all expenditures) and the PRICES of the various services.
Cost may rise without any price increase if only because the population grows.
No, of course not. All ‘market basket’ measures of prices are weighted measures; the weights being determined by the proportion of spending represented by that item or class of items.
Also, what azumbrunn says. Total healthcare cost is price x number of purchases, summed over all goods and services in the category ‘healthcare’. Price increases increase total cost, other things remaining unchanged; and more services rendered increase total cost, even if prices don’t change.
I'm aware of the difference between price increases and total costs. I'm not why that is relevant to this discussion of the former.
Ah. Because the composition of the ‘market basket’ stays stable for long-ish periods, so that YoY comparisons are valid. But looking back at Kevin’s post, I think he was rather careless in his use of ‘cost’ and ‘price’. I think where he uses ‘cost’, he should have written ‘healthcare price index’. And one sector cannot ‘inflate’.