Which Way Does the Curve Bend?

Healthcare inflation has been tame in recent years. The White House salutes Obamacare, and chief economic adviser Jason Furman argues that the program “bent the cost curve” down. Critics credit the weak economic recovery: it was hard for doctors and hospitals to jack up prices when the economy was lumbering through the Great Recession. Spending on prescription drugs was almost flat in the years from 2010 to 2013. That was great news for government budgeteers who tremble at the $40 trillion hole in Medicare’s unfunded liabilities.

But the good news may be over. Warning signs for medical inflation are flashing. In 2014 drug spending jumped 12.2 percent, and spending on doctors  jumped over 4 percent in 2014, double the 2013 pace. Last week’s consumer price index showed a monthly bump up in medical inflation (0.5%). By avoiding serious entitlement reform, the federal government is inflating a big balloon payment. And if medical inflation picks up, that balloon could start looking like the Hindenburg.

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