centre-left Washington is arguing with ever-greater ferocity that centre-right Washington is mistakenly obsessed with deficit reduction. Part of the argument is familiar:1. Low Treasury interest rates show markets unconcerned about the $16 trillion national debt.
2. As the economy continues to heal, annual deficits will shrink substantially.
3. To the extent budget shortfalls are a problem, they are a long-term one driven by health care spending.
Now a new wrinkle is being added to that last point: A persistent slowdown in the growth of health care costs might mean scary Congressional Budget Office forecasts are overstating America’s long-term debt problem. The New York Times points out today that new data show overall health care spending growth continuing at the lowest rate in decades for a fourth consecutive year. As it is, the cost slowdown has led CBO to cut $200 billion from its 2020 spending forecast for Medicare and Medicaid. Maybe more downward revisions are on the way. As former White House economic adviser Jared Bernstein tells the Times:
We’re not going from unsustainable to sustainable. Even if the recent changes persist, we’re not done in terms of achieving sustainability in health care cost growth, but we have more time to figure out what’s working without hacking away at social insurance.
Bernstein, shorter: Let Obama’s Affordable Care Act work its magic, no need for major restructuring — and certainly no need for the GOP’s Medicare premium support idea.
Now, I agree that the decline in health care inflation hasn’t just been a cyclical one due to the economic slowdown. The rate of health care spending has been falling since 2002. AEI’s J.D. Kleinke points to some factors which are likely responsible: a) lots of breakthrough drugs from the 1980s and 1990s became widely available in generic form in the 2000s; b) health insurance plans became more diverse, giving consumers more choice, such as health savings accounts; c) the IT and networking revolution has improved disease management.
To sum up: Innovation — both in technology and products and processes — has slowed the rise in health care costs. Is the ACA and its expanded government intrusion into the sector likely to sustain and accelerate innovation or retard it?
Take the treatment of HSAs, for instance. As one analysis from International Society of Certified Employee Benefit Specialists warns:
The health care reform law contains only two direct changes to health savings accounts (HSAs): eliminating the ability to use the HSA for over-the-counter drugs and increasing the early withdrawal penalty from 10% to 20%. The indirect changes, however, could drastically curtail the growth of HSAs or even result in the end of HSAs.
Or would it be better to transform the ACA into a system that intentionally brings more choice and competition — two things that typically drive innovation — to health care?
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