The End of the Health Care Bubble

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. 


Read/Post Comments (9) | Recommend This Article (17)

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  • Report this Comment On June 19, 2013, at 1:00 PM, DOCDELE200 wrote:

    This is juat a poorly researched article. Health care costs have come down because Mediare and Mediaid are paying doctors less, not because patients and doctors are thinking of innovative new ways to deliver health care

  • Report this Comment On June 19, 2013, at 1:05 PM, TMFHousel wrote:

    ^ That's just a poorly researched comment, because rethinking health care is exactly what's happening.

    Here's David Cutler of Harvard:

    "We conclude that a host of fundamental changes—including less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency—were responsible for the majority of the slowdown in spending growth."

    http://content.healthaffairs.org/content/32/5/841.abstract

  • Report this Comment On June 20, 2013, at 8:42 PM, bugmenot wrote:

    my hospital bill for 2 days in intensive care was

    $96,000

    1 of those days I was perfectly normal

    they wanted to pump me full of antibiotics,

    it included $5000 for emergency room

    bill did not list what all the charges were for

    it was a teaching hospital so I got to see 20 doctors they stopped by for 2 minutes each

    some were just trainee's

    I had 3 senior doctors

    blood tests every 2 hours

    no food for 2 days,

    drug induced coma they gave me the drug Michael Jackson had

    a tube in the lungs

    a tube in the stomach

    taken off all drugs after 12 hours except antibiotics every 4

    personal 24 hour nursing care,the nurse sits outside 2 shifts 12 hours,

    nurse checks on you once an hour,3 people die in the room next to you in 24 hours,the room gets refilled quickly

    sitting up in bed after they took the coma drugs

    perfectly normal,

    they wanted to keep me in another 2 days

    luckly I had insurance or I would have gone bankrupt

  • Report this Comment On June 21, 2013, at 6:23 PM, mikiheart wrote:

    bugmenot I am so glad you are still alive.

  • Report this Comment On June 21, 2013, at 7:09 PM, xetn wrote:

    As the saying goes: the cure for high prices is high prices. In other words, when prices of anything goes up too high, the demand will go down until prices and demand equilibrate.

  • Report this Comment On June 21, 2013, at 8:55 PM, wtatm wrote:

    Morgan,

    Three thoughts...

    1. Looking at Eddy Elfenbein's detailed graph, it appears that the ratio of the Medical CPI to the Core CPI has remained between 1.81 and 1.82 for only the last 11 months.

    2. Looking at your 2nd graph shows that although the Medical CPI ratio to Core CPI ratio has plateaued in the last year or so... it looks like it did the same thing for about the same amount of time during the beginning of the Great Recession. That plateau was at about 1.69... or 12-13 points lower than today.

    Although the trend looks good so far, as a health insurance actuary, I have learned not to declare victory on 11 months' worth of data.

    3. Let's optimistically say the plateau is real... and will continue well into the future. That still saddles America with a health care system that is nearly twice as expensive per capita as the average for other industrial nations in the world... with no demonstratively better health outcomes.

    We still have a long way to go.

    Great research. Thanks.

    Jim Otten, FSA

  • Report this Comment On June 21, 2013, at 10:09 PM, super1337 wrote:

    Those CPI numbers are a bunch of propaganda. The government statistician bureaucrats that released them should feel ashamed.

    Health care costs went up over 100% in the last 10 years. I have seen 30% premium increases in one year.

    To try and say they are running at 2-4% is intellectually dishonest. If I had to guess they are only looking at the portion of health care costs paid by consumers, not the burden placed onto employers which would include the total costs. An employer can either be paid in wages or benefits, so any costs employers pickup ultimately reduce employee wages.

  • Report this Comment On June 21, 2013, at 10:28 PM, ynotc wrote:

    Anecdotally I can say that the cost of insurance and the deductibles that we need to pay before receiving any money from insurance has trippled in the last 5 years.

    I don't see this.

  • Report this Comment On June 22, 2013, at 1:32 PM, todamo13 wrote:

    There are (at least) 2 devastating problems with our "health" care system:

    1) It is massively expensive, sucking up 20% of US GDP. It will bankrupt this country at this rate. Most of the cost goes into massive profits for Big Pharma, hospital corporations (especially "non-profit" ones like MD Anderson), medical device manufacturers, etc. This is "good" if you are a shareholder, but bad if you care about society or where this country is heading.

    The Time Magazine article "Bitter Pill" by Steven Brill shows this aspect of the problem very well. Even worse, our crazy-expensive medical system produces worse outcomes than those of countries which spend much less.

    2) Our medical system itself has been taken over by the pharmaceutical industry, the hospital industry, the medical device industry. What I mean is, the profits are in drugs, hospital procedures, and devices, not in actual health of people.

    An example is cholesterol-lowering statin drugs- these cause devastating side effects, and are based on a flawed theory. Yet, collusion between government and Big Pharma lowers the "acceptable" cholesterol level again and again, so that more and more people "need" statin drugs. These drugs cause memory loss, muscle wasting, hormonal deficiencies (hormones are made from cholesterol), and eventually, heart failure due to shutting down Co-enzyme Q10 production. Bad idea if you want to be healthy, but great for Big Pharma profits.

    That's only one example of many. Another is Vioxx. This drug killed almost 50,000 people through heart failure (my uncle being one of them). Reactions to properly prescribed pharmaceuticals is something like the 4th leading cause of death in America. It's a flawed paradigm, producing profits but not health (and often producing harm).

    That's why I refuse to call what we have "health"care, because it's not. Maybe Sickcare, or Pharma-treatment. But it very often doesn't have anything to do with health. And it's very, very expensive.

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