Health Care Spending Slow for the Third Year Running

Jeffrey Young writes that for the third straight year aggregate health care spending has advanced at only a slow pace, registering a 3.9 percent increase from 2010 to 2011.

This is thought to be largely due to the recession rather than to any grand policy changes. But I think the existence of a recession-induced spending slowdown probably tells us just what it will take to “bend the curve” on health care spending—namely for people to be out of money. Absent a crazy credit bubble, people can only spend so much on health care services. But I think the evidence is pretty strong that the typical middle-class American would spend a large share of his or her marginal dollar on health care. If we started to see the kind of wage growth we saw in the ‘50s and ‘60s, we wouldn’t suddenly leap up to owning seven cars per capita. We’d probably spend a lot on health care, either buying a greater volume of services or paying a premium to avoid a lot of the hassle costs that have emerged in recent health care practice.

A harder question to answer is whether our health care spending is getting any more cost effective. Pundits and politicians often run together the idea that the health care sector is problematically wasteful with the idea that the total spending volume is high. But when you think about it, there’s really nothing better to spend our money on than good health—if that’s what we’re getting for it. Are cash-strapped households managing to find smart ways to cut back, or is this happening indiscriminately?