America’s perenially rising healthcare costs, as Via Meadia has noted many times before, are possibly the single greatest threat to the long-term fiscal health of the country. As the American population ages, rising health costs and the cost burdens associated with programs like Medicare threaten to demolish the budgets of state and federal governments alike.There may be some new signs, however, that things are beginning to shift in the right direction. A recent Economist report noted that for the first time in decades, the growth in healthcare costs is slowing to the point where they are nearly matching GDP:
However the deceleration in spending is not entirely cyclical. David Knott and Rodney Zemmel of McKinsey point out that the rate of spending growth has declined for each of the past eight years. Three factors—drugs, hospital care and administrative costs—used to account for an outsized share of the growth. Since 2006, however, spending on each has slowed remarkably. Drug costs have fallen as products lose their patents. Big Pharma is not introducing new blockbusters as quickly as it is losing old ones. More and more services are moving from the hospital to less expensive clinics. Private health insurers are wringing efficiencies from their back offices.
It’s not entirely thrilling that costs are coming down because no fantastic but expensive new treatments aren’t being discovered, but a slightly-less-unsustainable health cost trajectory is good news. It will take time to determine whether this is a long-term shift or merely a brief respite from a continuing trend, and dramatic reforms to our healthcare system will be needed either way. Still, after years of unremittingly grim news on health costs, we will take any rays of sunshine we can get.