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Good news for Obamacare: Health coverage is soaring, but health care prices aren't

Jean-Sebastien Evrard/AFP/Getty Images News

Health care prices have grown really slowly this summer, a piece of good economic news released by the Bureau of Labor Statistics Tuesday.

The price of medical care commodities, which includes drugs and other medical  devices, grew 0.3 percent from June to July. That was one of the lowest monthly increases all year. Growth over the previous year was 3 percent.

Prices for medical care services (like health insurance and hospital care) grew an even smaller 0.1 percent over the same time  month and 2.5 percent over the year. This matters just as much — or maybe more — than news about total health spending.

Prices are really important in health care

Prices matter because they affect total overall health spending. The country might spend more on health care because more people are gaining access to health care while prices grow at a normal rate, and that wouldn't terribly alarming.

But if the prices attached to health services accelerate faster than the general inflation — and if we're not getting better care for those higher prices — it suggests that health spending is growing in a less healthy way.

The federal government isn't the only one noticing the slow growth. The Altarum Institute, a nonprofit research organization, has charted growth in health care prices, comparing monthly prices to the month of the previous year. While it's positive overall, growth in the index has been modestly slowing since May.


Health Care Price Index and GDP Deflator. (Altarum Center for Sustainable Health Spending)

Health spending in 2014 has surprised experts

In June, the Bureau of Economic Analysis reported that total health care spending had declined during the first three months of 2014. This was a big deal: the inexorable climb of health expenses has plagued the nation for decades, and remains the primary culprit behind the nation’s projected long-term fiscal problems. June's report marked the largest decline we’ve seen in over 30 years.

But we should probably expect to see an uptick in health spending sometime soon. It makes sense: the number of uninsured people has been plummeting, and when more people use health care, spending generally goes up.

The first-quarter numbers were anomalous in this regard, but they wouldn't have captured Obamacare's entire "March enrollment surge" — people wouldn't have started using their insurance until a few weeks after signed up for a plan. Experts have also suggested some people may need time to figure out their new plans and that the unusually cold winter weather may have dampened use of medical services.

Total health spending is only part of the story

When we see that increase in total health spending happen, it's not necessarily bad news. The underlying trends matter: we need to understand what's happening besides "more people are getting and using insurance."

Medical prices are a trend we should care about a lot and slow growth — like what the Altarum Institute has charted — is a good thing. The growth in the health care price index was at its lowest since March.

Prices aren't the only economic indicator we care about for forecasting trends. Employment in the health care sector is a major factor, as more employees portends higher spending. General trends in Medicare expenditures also matter, because the program — which has shared in the industry-wide spending slowdown — is considered less sensitive to influence from broader economic trends.

It's still not entirely clear what's driving the slowdown in spending. A recent paper argued that 70 percent of the slowdown can be attributed to the recessions. Experts also point to a variety of structural factors, including a deceleration in the adoption of new technology, an increase in the patient share of health expenses, and changes to the way we finance care.

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