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Guest Thinkers

Could Health Care Costs Be Starting To Come Down?

Catherine Rampell, in the New York Times’ Economix blog, noticed something interesting about the Bureau of Labor Statistics’ latest report on consumer prices. Overall, consumer prices grew 0.3% in July on a seasonally adjusted basis, somewhat allaying worries about deflation after they fell over the three previous months. The core consumer price index—which doesn’t include changes in volatile food and energy prices—rose just 0.1% in July and 0.9% on the year. That matches the lowest yearly change in core consumer prices since January 1966, suggesting that deflation is still a possibility.

What Rampell noticed is that one component of consumer prices did fall in July: medical care prices fell 0.1%. That may not seem like much—it’s just one data point and medical prices have still risen 3.2% on the year to July—but as Rampell points out, medical care prices has risen every month since 1975, and have fallen just six times since we started keeping track of them in 1947. In fact, not only have medical care prices been increasing continuously for the last 35 years, but they have increased almost twice as fast as consumer prices overall since the mid-1980s.

Although the price of drugs and medical equipment fell in July, the drop in medical prices was mostly driven by a fall in the cost of hospital care. Only the cost of private professional care grew. The price of hospital care had been growing faster than any other component of medical prices—far faster than consumer prices in general—to the point that it’s now an incredible six times more expensive than it was in the 1980s.

“Maybe,” Rampell says, “the deflationary apocalypse really is upon us.” Certainly, there are signs that the recovery is slowing. But there is another tantalizing possibility, which Rampell doesn’t mention, that might explain the fall in the costs of medicine and hospital care. It may be that the Democrats’ controversial health care reform bill has begun to have an effect on health care costs. It may be that health care reform is actually working.


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