July 19, 2014

WELL, WHY WOULD IT? ObamaCare Isn’t What’s Slowing Costs.

I think we can be pretty sure that public policy is not making the system more efficient, for two reasons. First, the decline started in the middle of the last decade, and there’s no plausible policy mechanism that would have caused cost growth to moderate just then. And second, the same broad trend shows up in pretty much every high-income country. No matter how smashing you think Obamacare was, it didn’t stabilize health-care spending in Switzerland.

It could be a matter of better practices in the industry. One piece of evidence for this: The cost growth seems to decline most steeply in English-speaking countries, which could reflect some sort of information dissemination.

And yet, I’m skeptical. Health care is not a competitive industry the way automobiles are. The British, Canadian and American systems do not much compete for patients; moreover, each is organized so differently that it’s hard to imagine all of them implementing the same productivity-enhancing measures at the same time.

Industrial diffusion is simply inherently slower than the trends we seem to be seeing — it’s not as if Toyota invents just-in-time production, and two weeks later, it’s in every factory at General Motors. This has to be especially true in health care, where competitive pressures are limited and heavy government involvement makes major change into a ponderous process.

Technological decline seems more plausible; see this Brookings Institution paper for the extended argument. Basically, health-care innovation is expensive, and for roughly the last decade, we’ve been doing less of it. As old innovations come off patent or are refined into cheaper and better versions, costs fall.

If you think health-care innovation is all useless me-too drugs, you should be pleased that we’re getting less of it. As it happens, I don’t think that’s the case, so while I’m pleased about the budget impact, I’m less pleased at the prospect of fewer new medical technologies.

Yes, and ObamaCare is likely to exacerbate that problem.