Paying the price.

Photographer: Aaron Harris/Bloomberg

Lower Health Costs Won't Cure All

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
Read More.
a | A

It was a sure bet that if health-care costs fell after the Affordable Care Act was passed, we’d see people writing articles about how the law had finally gotten health-care costs under control. And so it has come to pass, and so a number of readers have written me to ask whether this is actually true. 

The short answer is that I’m far from convinced. For one thing, people seem to be awfully light on probable mechanisms, other than some changes to Medicare, some of which are still in the future, and none of which seems big enough to account for the decrease in cost growth. For another, when you look at the recent history of U.S. health-care spending, you see that the rate of growth started to moderate more than a decade ago: 

You get a slightly different result if you look at the per-capita growth rate, but not very different: 

For a third thing, health-care cost growth as a percentage of gross domestic product fell worldwide after the Great Recession, as you can see from this chart:

And however great you think that Obamacare is, it’s probably not so great that it’s causing expenditure growth to slow in Germany.

So what is causing cost growth to slow down? I find this answer given by researchers to be pretty plausible: a combination of changes in private insurance and Medicaid programs as well as a general slowdown of technological innovation in the health-care sector.

That last part means that a slowdown in health-care costs isn't necessarily great news -- it might mean fewer health-improving, life-extending innovations, which is great for the bean counters but not so great for us fragile humans who would like to live longer, healthier lives. Even for the bean counters, it also presents a risk: that technological innovation will start to speed up again.

Here’s a good example of what I mean:

The 49-year-old woman had had three melanoma growths removed from her skin, but now the disease was spreading further. A several-centimeter-sized growth under her left breast went deep into her chest wall. Some of the tissue in the tumor was dying because of lack of blood flow.

Doctors at Memorial Sloan Kettering Cancer Center offered her an experimental combination of two drugs: Opdivo and Yervoy, both manufactured by Bristol-Myers Squibb, both among a vanguard of new medicines that boost the immune system to attack tumors. Three weeks later she came back for her second dose.

“She didn’t say anything and when I examined her, I said, ‘Wait a minute!’” says Paul Chapman, the doctor who was treating her. “She said,  ‘Yeah, it kind of just dissolved.’”

Bristol-Myers Squibb just announced that it was stopping a trial for Opdivo against non-squamous non-small-cell lung cancer -- because the drug was working so well that it was unethical to keep it from the control group. These are about the happiest words an oncologist ever hears. The drug does have some nasty side effects, but then so does advanced metastatic cancer; most patients will be willing to make the trade for these sorts of spectacular results.

This is great news in the fight against a disease that kills far too many people, but here’s the rub: The wholesale cost of the drug combination that the melanoma patient was taking could run more than $250,000 a year. In some sense, that’s a small price to pay for a drug that seems to cause tumors to dissolve in about 20 percent of patients, with good but less spectacular results in a much larger number. On the other hand, there are a lot of cancer patients in the country. How much are we willing to spend on Opdivo and other drugs like it? 

My basic take on the matter has always been that we’re really rich, and if the health-care industry can deliver longer, healthier lives in return for hog-wild spending, that’s probably a trade we should be willing to make. We’re so rich that we have whole aisles in the grocery store devoted to making our laundry smell nice and our towels softer, so what’s wrong with spending more money on better health?

But my biggest fear about Obamacare is that the government has a hard time making that sort of deal. It is easier to sit on drug approvals or restrict the use of expensive treatments than explain to folks why their taxes are going up. The more deeply we involve government in the health-care system, the greater the incentives government will have to squash innovation -- not exactly deliberately, but through price controls and onerous review processes that make it harder and harder to get new technologies to market.

So maybe the bean counters shouldn’t be worried. But the rest of us probably should be.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net