The Health-Cost Problem Is Coming Back

This was published as a Wall Street Journal Think Tank column on May 8, 2014.

The national discussion on health care has focused on expanding coverage: How many people are enrolling in insurance under the Affordable Care Act? What is the impact on the number of uninsured? But the conversation will soon shift back to health-care costs because they are rising more sharply again.

Now utilization is picking back up as the economy improves. The increase in health spending  ticked up past 5% in the last quarter of 2013, and preliminary estimates suggest it continues to accelerate, driven almost entirely by higher health-care use rather than higher health-care prices. Some of the growth so far in 2014, but probably not all, reflects a one-time bump as more people get insured through the ACA and use more health care.

Spending rose by at or near double digits in the late 1980s and early 2000s, and the average over the past 30 years was more than 7%. Are we returning to the norm of around a 7% annual increase, or worse? Or, with more cost consciousness in the system than I have ever seen, will we remain just below it? The stakes here are enormous. Every 1 % rise in the rate of health-spending growth means about $2 trillion more in spending on health over the next 10 years.

We have no national policy on health-care costs and will not have one anytime soon; liberals, conservatives and health care’s big interests could never agree on one. As the discussion turns back to costs, current efforts in the public and private sector, however fragmented and uncoordinated, will need to step up their game.