Washington – April 10, 2014
“A welcome relief from rising health care cost for U.S. consumers is being less warmly received by the Federal Reserve.”
Mr. Abbott, a Washington economist, is heard explaining it to Dr. Costello, a physician.
A: The cost of health care services rose just 0.8% this year.
C: That’s good news. We all have been working hard to reduce costs,what with meaningful use, and evidence-based medicine, and transparent patient portals. It’s hard work.
A: Its not good news.
A: Health care sevice prices are down from its 10 year average of 2.6% increase.
C: That’s really good.
A: No,its not.
A: It’s a sign of persistent deflation.
C: Aren’t we afraid of inflation?
A: Not now.
A: Their current goal is 2% inflation.
A: The Federal Reserve.
A: They measure the economy.
A: Using the Personal Consumption Expenditures or PCE.
A: LIke the Consumer Price Index, the PCE measures what people spend on things.
A: People spending more money on things means the economy is growing stronger.
C: Who says?
A: Mr. Bush. Remember, he asked us all to go shopping to get out of the recession.
A: In America, of course.
C: What do health care services have to do with the mall?
A: Health care services make up 25% of the prices measured by the PCE.
C: So what.
A: Physician fees went up only 0.2%, down from 1.6% in 2012.
C: THAT’S not good for me!
A: No, its not.
A: Nursing home prices went up only 0.3% rather than the 1.8% rise of two years ago.
C: I know, I know. That sounds good but its not?
A: If health care prices don’t go up, the PCE doesn’t go up, and our economy looks stagnant.
C: Oh, boy! I think I got it. If all the efforts to reduce health care costs succeed, the PCE will not rise, inflation will be less than 2% a year, deflation will persist, and the Federal Reserve will label the economy as stagnant.
A: Now you’ve got it!
C: What about the impact of the Affordable Care Act?
A: Economists agree that the impact of Obamacare is not yet clear.
C: Oh boy!
A: Any questions?
C: Just one.
C: Who’s on first?
Hub Thanks for the clear and lucid presentation regarding the complexity of the health care system and itâs relationship with inflation and deflation. After reading your missive, I have concluded that economics really is your strong suite and to think you wasted all those years on medicine is a national travesty unlike any other in the twenty first century. Now I know who is on first, but whatâs on second for us and I just donât know about third., please advise