Robert Samuelson January 8, 2014

Call it the $2.8 trillion enigma. That’s the amount Americans spenton health care in 2012. The good news is that health spending slowed unexpectedly for the fourth consecutive year. The enigma is that no one really knows why. Despite many theories, there’s no expert consensus.

Runaway health spending is a huge national problem. It has squeezed take-home pay (employers channel more compensation to health insuranceand less to salary) and is crowding out other programs — schools,defense, regulation, police — at the federal and state levels. If theslowdown is temporary, then all these problems remain. But if there’s apermanent shift, then the nation’s economic and budget outlook hassignificantly improved.

Let’s start with the facts, as recently reported by the Centers for Medicare and Medicaid Services (CMS) and printed in the journal Health Affairs.

In 2012, U.S. health spending grew 3.7 percent, virtually identical with the increases in 2009 through 2011 and much slower than the 9.7 percent of 2002, the latest high point.The increase was so small that health spending as a share of the economy (gross domestic product) actually shrank, from 17.3 percent of GDP in2011 to 17.2 percent. This almost never happens. Health care as a shareof GDP has been climbing steadily since 1960, when it was about 5percent.

Note an apparent paradox. Tame overall spendingcontrasts with reports of hefty premium increases on the insuranceexchanges established by the Affordable Care Act (Obamacare). How canboth can be true? Easy. By law, the insurance plans offered on exchanges often provide more coverage than plans they’re replacing — and hencecost more.

Now, the competing theories.

●It’s the Great Recession. “Historical experience” shows, saysCMS, that health spending slows for two or three years after an economic slump. Presumably, this reflects cost-conscious patients deferringelective care, some patients losing insurance (and using less healthcare) and general downward pressures on wages and prices.

●It’s the Affordable Care Act. Writing in the Wall StreetJournal on Jan. 7, Jason Furman, head of President Obama’s Council ofEconomic Advisers, said the new law made a “meaningful contribution” to the slowdown, mainly by reducing Medicare reimbursements. Some cuts spilled over to private insurance, he said. By contrast, CMSconcluded that the Obamacare had “a minimal impact” — some provisionsraised spending, some lowered it.

●There’s been a retreat from the use of costly medical technologies. Patent protection lapsed for some blockbuster drugs (including Lipitorfor cholesterol control and Singulair for asthma), allowing theirreplacement with cheaper generics. Drug spending rose only 0.4 percent in 2012, down from 2.5 percent in 2011. The number of some expensive surgeries(heart bypass and mastectomies for breast cancer) has also dropped.

●Higher insurance deductibles and co-payments caused consumers to be more cost-conscious. From 2006 to 2013, average deductibles rose from about $600 to roughly$1,100 in private plans with deductibles, report economists AmitabhChandra and Jonathan Holmes of Harvard University and Jonathan Skinnerof Dartmouth University in a new study. They estimate that this reducedhealth-care use under these plans by 1.3 percent.

Of course,these theories aren’t mutually exclusive. All could be true. Nor do they indicate whether the spending slowdown will continue. They could herald a new era of more cost-conscious medicine, as hospitals and doctorsreact to pressures from government and consumers.

Or maybe not.The demand for health care will probably rise, as baby boomers qualifyfor Medicare (older people have higher costs) and as the uninsuredreceive coverage under the Affordable Care Act (insurance causes peopleto use more health services). The economists’ study forecasts a spending rebound. The recession’s effects will fade; deductibles won’t riserapidly forever. Finally, costly new heart-disease and cancer treatments will bloat spending with modest health benefits, their study says.These new technologies will be hard to stop, because “Medicare islegislated to pay for any treatments that won’t actually cause harm.”Changing this would seem one obvious way to perpetuate the spendingslowdown.

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