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For Health Care, It's Time to Party Like the 1990s

Joe Raedle/Getty Images News/Getty Images

Today we have some encouraging news on health care spending. We just can't be certain why.

The news is about national health care spending—in other words, all the money we spend on medical care, whether through private or public insurance, or through direct out-of-pocket expenses. National health spending goes up every year and 2012, the year government experts have just analyzed, was no exception. But spending went up by less than 4 percent, which is very low by historical standards. And thanks in part to a recovering economy, health care spending actually shrank as a percentage of the economy. It's down to 17.2 percent, from 17.3 percent in 2011. The last time health care declined relative to the economy as a whole, Bill Clinton was president.

The findings should not surprise anybody: They are perfectly consistent with recent reports from the Altarum Institute. But what's the reason for the ongoing slowdown? That's where the uncertainty comes in.

Pretty much everybody agrees that the primary factor for lower health care spending is the lingering effects of the recession. When people have less money at their disposal, they spend it a lot more carefully. And one place they economize is on medical care. (Sometimes this is good, sometimes not—but that's a discussion for another day.) The official government analysis, published in the journal Health Affairs, cites this as the main reason for the spending slowdown. Another factor is one-time savings. Among other things, several expensive prescription drugs recently lost their patents.

Those savings were big enough to help offset some slight upticks in physician and hospital spending, which is what you'd expect as the economic recovery slowly gets stronger. "I see indications of an uptick in these trends," says Paul Ginsburg, senior fellow at Mathematica Policy Research. "If not for major drug patent expirations, the higher growth in hospital and physician spending would have been more visible." 

But there's been some evidence that the Affordable Care Act is also a factor in restrained health care spending—and will be an even bigger factor in the future. Among the most optimistic about these signs is David Cutler, the Harvard economist and former adivsor to President Obama who has written on the subject extensively. "The continued slowness in cost increases, even several years after economic growth has resumed, indicates quite strongly that the health care cost curve is bending," Cutler says.

What do I think? Honestly, I'm not sure. If you cover health care and talk to people in the industry, it's obvious that the law’s incentives are having a major effect. Hospitals in particular are reengineering themselves to focus on safety, to make sure providers communicate with each other, and to improve follow-up care after patients are discharged. These changes are happening quickly—more quickly than many of us expected. But will these changes last? Will providers learn to game the new incentives, as they have in the past? Will less spending in one part of the health care system eventually show up in another?

As even optimists like Cutler acknowledge, there's no way to answer such questions definitively right now. We’ll just have to wait and see.