Health Care Costs Rising Again

The Health Care Cost Institute bears bad news: the health care cost growth slowdown has ended.

Previously, health care spending increases under 4 percent in 2009 and 2010 had provided some hope that the days of system-wide unsustainable cost growth were over. But HCCI reports that, at least among employer-provided health plans, costs are rising again, by 4.6 percent last year:

The HCCI report, based on a massive dataset of private companies' health care claims, is a reminder of the need for measures to address the spiraling costs of health insurance and health care. It's also, as Megan McArdle points out, a rebuke to those who argued that the Affordable Care Act was already somehow lowering health care spending.

There's one other point to be made about this news, though. The most common, and convincing, explanation for the 2009-2010 slowdown in cost growth was that the recession was causing people to use less health care. That is, people were putting off operations or visits to the doctor because of financial strains or the loss of health insurance following layoffs. It would be expected that health care costs grow a little slower during such a severe recession.

So it's a cause for concern that health care spending is growing faster again, even though the economy is still very weak. The HCCI report makes clear that the increase in dollars spent on health care is mostly a function of rising prices, not higher utilization. If utilization picks up when the economy does, health care cost growth could be even higher than expected.