Sarah Kliff reports that excess cost growth may be coming to an end.

Many have dismissed a recent slowdown in Medicare cost growth as temporary, a consequence of the economic downturn leaving Americans with less to spend on their medical care. Chapin White and Paul Ginsburg, however, beg to differ. Tracing the health-care spending slowdown back to 2005, they think we could be at the beginning of a more permanent trend:

There has been a long-term trend toward tighter Medicare payment policy, and policy changes that began in the middle of the 2000s have continued that tightening. The Deficit Reduction Act of 2005 (DRA) reduced payment rates for imaging, home health services, and durable medical equipment, and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) made substantial cuts to Medicare Advantage plans. . . . All these specific constraints on payment rates probably also slowed growth trends in the volume of services provided, leading to a larger slowdown in spending growth.

Of course I am SHOCKED, SHOCKED that some long run projections may turn out to be fundamentally off.

There are a few things I want to note though

1) It is important to remember that excess cost growth was always going to slow no matter what, because health care is a part of GDP. That’s not a  projection, that’s a matter of accounting. The only question was what fraction of GDP would it equilibrate at.

2) The key to reducing costs is to pay less for things. People focus on efficiency or smart choices but efficiency won’t give you lower total costs. That’s because as long as the perspective is that we will pay for anything that meets our standard of efficiency and effectiveness, the market will simply provide you with greater and greater quantities of things that meet your standard of efficiency and effectiveness.

Now, some people may want that. But, that will result in you spending more, not less.

See computers for an example of rapidly growing efficiency and rapidly growing total cost in the private sector.

3) Suppose that this trend were to continue and that per enrollee costs actually shrank as fraction of potential GDP. In that case the long term budget outlook is pretty good.

Now imagine that you withheld a payroll tax cut or food stamp relief or any other program on the basis of fear about long term budgets. Depending on your macro estimates somewhere between millions and hundreds of millions of people suffered for this.

What did you get in return for their suffering?

Absolutely nothing. Nothing. Nothing.

Every time you ask a real living person to suffer for some future goal you have to know that you are betting their well-being on your being right about the future.

How sure are you that you are right?

Austerity costs with probability one. Attempting to effect long term growth is always a gamble.

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