Health-Care Prices Are in the Longest Slowdown on Record

The price of health care has grown more slowly than core consumer prices—what Americans spend on everything except food and energy—over the past five years. It’s the first time that’s happened since record-keeping started in 1959. That’s a remarkable break from decades of health-care prices outpacing inflation, but consumers shouldering a greater share of their medical costs may not notice the difference.

Goldman Sachs economist Alec Phillips pointed out the milestone in a research note on July 22. His analysis uses a broad measure of health-care prices, including what health providers charge government programs such as Medicare and Medicaid.

The price of health care typically lifts overall inflation, but in recent years it’s been an anchor weighing down overall price growth. What’s behind the slowdown?

Some of it is from government-dictated reductions in Medicare and Medicaid payments. Wage growth in the health-care sector has also been slow since the recession, Phillips notes.

Low health inflation is good news for economists and policymakers concerned with taming the nation’s $2.9 trillion annual medical bill. But price is only one piece of the equation. The other is utilization—how much care we use—which is rising, particularly since more people are getting insurance under Obamacare.

It may not feel like good news to consumers, though. Patients don’t notice the lower prices Medicare pays. And more insurance companies and employers are nudging people toward high-deductible health plans that shift risk onto consumers in exchange for lower premiums. Even if the price of going to the doctor hasn’t gone up much in the past five years, a lot of people are paying a bigger portion of the bill.