Midday Report: Health Care Inflation Slows; Will It Last?

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Inflation in the healthcare sector has slowed dramatically. Is that a temporary blip, or the start of a long-term trend?

Since the recession hit, medical inflation has been roughly three percent, far less than the 7.4 percent long-term average from 1980 through 2008.

The recession was certainly a factor, but a series of research reports published in Health Affairs magazine says there are other more important factors at work that could significantly lower the long-term cost of medical care.

The authors, from Harvard University and elsewhere, say that if the trend persists over the next decade, the United States could spend $770 billion less than projected, substantially cutting the budget deficit.

The researchers say their findings "suggest cautious optimism that the slowdown" in health spending may persist.

That's the good news. The bad news: individually, we're spending more on health care. Actual out-of-pocket expenditures continue to rise, as we pay higher deductibles, higher co-pays, and a greater share of employer-sponsored insurance plans.

That means families are picking up a greater percentage of the health care burden. The study says that this accounts for about 20 percent of the decline in overall health spending.

Still, we could all benefit in the long run as lower health care spending could have a significant impact on the deficit.

Other key factors include the trend of more doctors affiliating with hospitals, automating health data management, and lower Medicare payment rates. There's also this: the development of costly new medical treatments and medications has slowed down.

And experts note that many doctors and hospitals now accept what's known as "bundled payments" for a patient's overall treatment, instead of charging for each and every procedure. There are also efforts that focus on higher-quality care instead, of more care.

And the study authors say the new financial incentives in the Affordable Care Act –- aka Obamacare -– will lead the health care system in new directions, but that Medicare will remain a major policy challenge.

-Produced by Drew Trachtenberg

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Midday Report: Health Care Inflation Slows; Will It Last?
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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