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Kimberly Amadeo

Healthcare Costs Down — Thanks to Obamacare?

By August 15, 2013

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Here's something you probably thought you'd never see. The costs for medical care commodities, like medications, medical equipment and supplies, are .1% lower than last year. Medical care services rose 2.6%, but that's better than the annual 3.6% rise we've seen consistently during the past few years.

The main reason for Obamacare was to lower health care costs, and therefore government spending on Medicare. Could it be working? Thanks to regulations promoting coordinated care, fewer Medicare patients are being re-admitted within 30 days for complications. Other hospitals are avoiding unnecessary test and procedures because they now share in the savings. Third, hospital Medicare payments are being reduced if there's poor performance. In DC, Kaiser Permanente has already announced it's dropping its premiums 19.4%. (Source: USA Today, Administration Lowered Premiums, July 29, 2013; White House Blog, ACA Implementation Reduces Health Care Costs, July 29, 2013; Washington Post, Health Care Law Lowers Costs for Small Businesses, July 26, 2013)

There's other trends buried in the  Consumer Price Index report. Overall, prices are 2% higher than last year, and .2% higher than last month. Most of that is due to higher gas prices, which I warned you about last month. Prices at the pump are a chilling 5.2% higher than last July, and a solid 1% higher than in June. That's a result of higher oil prices in June winding through the distribution system.

Food prices are starting to inch up, thanks to high oil and gas prices that drive up transportation costs. Prices at the grocery store are 1% higher than last year, while restaurant prices are up 2.1%.

So, isn't this dangerously close to the Federal Reserve's inflation target of 2%? Doesn't this mean the Fed will begin tapering soon? No, because the Fed looks at the core inflation rate, which strips out these volatile food and energy prices. Since last year, the prices on everything else only rose 1.7%. As result, now investors are worried about deflation, rather than inflation. That's because a little bit of inflation is a good thing. When people expect prices to rise in the future, they are more likely to buy now to avoid the cost increase. A moderate 2% rate of inflation is just enough to spur demand, and promote health economic growth.  (Source: Bureau of Labor Statistics, Consumer Price Index, August 15, 2013)

How It Affects You

The low threat of inflation, and the possible emergence of deflation, means the Fed will probably not begin tapering until December or later. In other words, it will continue to boost economic growth with Quantitative Easing. Nevertheless, bond buyers are anticipating the Fed's moves, and have already sent interest rates on the 10-year Treasury to 2.7%.

As for lower health care costs, the best way to take advantage of them is to compare insurance plans on the health care exchanges. They don't officially open until October 1 (just six weeks away) but you can start to familiarize yourself now.

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August 20, 2013 at 2:32 pm
(1) StreetSmart says:

Huh…..Then how do you explain that my health insurance has risen over $3,000.00 per year since the inception of ObamaCare. I would say, according to your well conditioned writing of this article, that you drank the ‘kool aid’ and bought into the entire hoax.

August 20, 2013 at 2:50 pm
(2) vsheu says:

My health insurance premium has increased 70% since March, 2010.
All the indications are that there will be a much higher raise next year
and the year after that due to Obamacare. The reality is not consistent
with the message as the title suggests.

August 20, 2013 at 3:25 pm
(3) useconomy says:

Lower health care costs haven’t lowered the costs for health insurance companies yet.Insurance companies have raised their premiums in advance of Obamacare, which sets up a state review board that must approve premium increase in the future.

However, once the exchanges are set up, and there is true competition for health insurance, I’m sure that premiums will fall. Be sure to shop the exchanges, open on October 1, to find a better plan than the one you have now.

Here’s How to Get Obamacare.


August 21, 2013 at 1:07 pm
(4) Between the cracks says:

I’m tired of everyone pretending cost are down. Yeah, they are down for the privileged people who run insurance companies or have good insurance through work. But I’ve looked at the rates and plans available for the rest of us and even with subsidies it screws the working class big time.

Costs are way up for us.

August 21, 2013 at 3:25 pm
(5) useconomy says:

Part of the problem is that companies are paying less and less of their share of health insurance premiums. Instead, they are passing that onto their employees. In addition to increasing the share of the premiums that employees are paying, they are also increasing the deductible. As a result, workers have to pay more in health care costs before the insurance even kicks in.

That’s why your insurance costs are going up, even though the cost of healthcare supplies are going down, or at least not rising as fast.


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