Spending

(Bloomberg) — For years, we worried about the rapid rate of growth in health-care spending. A crude extrapolation of prior trends suggested that by the middle of the century, America would be spending 157 percent of gross domestic product on health care, leaving no money at all for food, shelter or Franklin Mint collectibles.

People usually talked about this as a problem of America’s unusually high rate of health-care cost inflation. But, in fact, that wasn’t the problem at all.

Compared with the growth rate in health-care spending of other members of the Organization for Economic Cooperation and Development, America’s has been on the low side. Relatively speaking, our spending on Franklin Mint collectibles is probably more of an outlier.

The problem was the level of our spending: We were growing at a relatively slower rate, but from a much higher base — the difference between a 10 percent raise on a $50,000 salary and a 5 percent raise on a $150,000 salary.

Unfortunately, it’s very hard to reduce the absolute level of spending on something — and much easier to cut the growth rate, even if that growth rate isn’t particularly fast. So during the debate over Obamacare, you heard a lot about “bending the cost curve.” And, wonder of wonders, over the last few years people noticed that health-care inflation was slowing down.

A number of theories accounted for why this was happening. One held that the Affordable Care Act had bent the cost curve just as promised; even though most of its reforms hadn’t taken effect, doctors and hospitals were preparing for them by holding down costs. This theory was very popular with officials in the Barack Obama administration and their advisers.

Another theory held that the health care cost slowdown was mostly due to the recession. Some people lost their jobs, and their insurance; either they were paying out of pocket, or they were on Medicaid, with its famously stingy reimbursement rates, and either way, spending was falling. Even those who had insurance might have been scrimping on elective care in order to avoid deductibles and co-pays.

A third theory held that we were seeing a temporary lull in the rate of medical innovation. Spending growth tends to be driven by very expensive care on the frontiers of medicine: oncology, transplants, neonatal and so forth. With a lot of drugs losing patent protection, and fewer hot new machines and procedures being introduced, health care spending was naturally slowing — possibly with an assist from insurers, who had started to do things such as running their own clinical trials to determine which patients needed expensive new drugs, and which ones could safely be kept on boring old generics.