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Home Publications Blogs Beat the Press The People Who Turn 65 in the Next Decade Are Not 25-44 Today

The People Who Turn 65 in the Next Decade Are Not 25-44 Today

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Thursday, 08 August 2013 05:17

Robert Samuelson's column today notes the sharp slowdown in health care cost growth over the last 5 years and discusses the extent to which it can be attributed to the Affordable Care Act (ACA). He is rightly skeptical of claims that the ACA has been a major factor in the slowdown since it preceded the passage of the Act and we still have not seen most of its provisions put into effect.

However, at the end of the piece Samuelson gives three reasons why costs are likely to increase going forward. One of the reasons, that Obamacare will increase insurance coverage and therefore demand for services, is plausible. The other two are considerably less so.

He argues that economic recovery is likely to increase the demand for services and therefore push up costs. This would be true if there were reason to believe that the pace of recovery is about to accelerate sharply. While most forecasts project that growth will be somewhat more rapid in 2014 and 2015 than in the last three years, it is unlikely that this difference would have very much effect on prices.

The third reason is that the population is aging. Samuelson tells readers:

"average health costs for those 65 and over are more than triple those for people ages 25 to 44."

While this is true, people do not jump from being 44 to age 65. Furthermore, the average for the older group includes many people in their 80s and 90s with very high costs. It takes a long time for someone age 44 to become 80. In reality the impact of aging on health care costs is gradual and we are seeing it now as the baby boomers move into their 50s and 60s, periods in which they have higher costs than when they were in their 40s.

This process has been imposing upward pressure on health care costs for the last decade or more. The impact over the next 5 years will not be much different than it was over the last 5 years.

It is worth noting that there are huge potential savings from increased trade in medical services. However this is almost never mentioned in policy debates because American politics is dominated by hardcore protectionists. 

Comments (2)Add Comment
Economies of Scale on the Frail Do Not a Unit Cost Increase Entail
written by Last Mover, August 08, 2013 8:08
He argues that economic recovery is likely to increase the demand for services and therefore push up costs. This would be true if there were reason to believe that the pace of recovery is about to accelerate sharply.


What the hell are Dean Baker and Robert Samuelson talking about here? Total costs or unit costs? Of course total costs usually increase with more demand when there's more people demanding service, or more demand per person for service.

But that begs the question of whether unit costs are rising or falling from the supply side, easily translated into per capita costs for the relevant group impacted.

Apparently the assumption here by Dean Baker is that unit costs are increasing even when controlling for more use of health care by the elderly.

Why? There are substantial scale and scope economy efficiencies to be gained in health care systematically crushed by the private market powers that be, as explained in many ways by Dean Baker. A primary one is the chokehold by medical device makers who have strangled health care for all it's worth.

Let's not confuse actual gains that produce economic efficiencies compared to who actually captures those gains, providers and insurers rather than patients. Let's not confuse more access to health care through insurance with moral hazard of overusing health care stemming from providers rather than patients. Let's not confuse some labor intensive areas of health that do not experience scale economies from other areas with huge efficiency potential.

Jesus H. Christ America. If you're going to blame increased health care costs on more demand, why not put MRI scanners in airports and provide free scans and better security to passengers at the same time in the interest of reducing the unit cost of health care?
Medical tourism doesn’t necessarily mean leaving the country to get treatment
written by AlanInAZ, August 08, 2013 4:32
This is slightly off topic but Dean does continue to link to my least favorite NYT article. I found the Times article that Dean links to a very flawed discussion of what a typical uninsured patient finds when confronted with the need for a joint replacement. The referenced WaPo article I think is better and far less sensational regarding "huge savings potential". I add that a large majority of patients are insured and that number will increase after Obamacare kicks in. Mr. Shopenn's circumstances are very atypical.

http://articles.washingtonpost...ahoma-city

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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