A number of headlines noted that a new government report showed the growth in healthcare expenses fell to a 50-year low. The real story is less reassuring and the trend in the future is alarming.
The Centers for Medicare & Medicaid Services (CMS) said that healthcare expenses grew by 3.9 percent in 2011, the slowest rate of change in decades. While the slowdown may be good, it is also not a surprise.
Price growth in general, as measured by the Consumer Price Index and other inflation gauges, is at low levels. This would hold healthcare costs down, as would an elevated level of unemployment. With health insurance still tied to employment for millions of Americans, the lack of a job often means that visits to a physician are deferred.
Healthcare consumed 17.9 percent of gross domestic product (GDP), even though the growth rate is slowing. Obviously, healthcare can never consume 100 percent of GDP. While no one knows what the threshold is, healthcare can only consume so much of GDP before the services are fully utilized.
Obamacare will push us to toward the limits quickly. Since the gains will be created by artificial stimuli to demand with various mandates, the costs of healthcare will soar.
CMS actually projects expenses to rise rapidly as soon as the mandates are fully enacted. They see spending increasing by 7.4 percent in 2014. Considering the number of insured is expected to rise sharply that year, this estimate is likely low.
Growth in spending should average 6.2 percent from 2015 and 2021, about two to three times the growth rate of the economy.
Soon, healthcare will account for more than 20 percent of the nation’s output. Obamacare may strain resources quickly and prices will rise even more. If prices get high enough, demand will drop and the nation will finally find a way to use the right amount of care as market forces intervene.
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