Medical Inflation Shows Signs of Easing

Article excerpt

Medical price inflation seems to be easing a bit, stirring hopes that the health-care monster may yet be tamed. But the price numbers can be misleading and even irrelevant, economists say, because the amount spent on health care is still rising by 10 percent a year, swallowing more of the economy.

The Labor Department said that after climbing steadily since 1987, medical price inflation slid to a 6.7 percent annual rate for the first 11 months of 1992, down from 7.9 percent in 1991 and 9.6 percent in 1990. But the slide probably will not be much help to President-elect Bill Clinton as he seeks a formula for affordable health care.

"Health spending is still escalating at the same rate as over the past couple of years," said Walt Bottiny, a health economist in Washington with DRI McGraw-Hill, a consulting firm that forecasts trends for the Federal Medicare program. "Medical inflation is moderating, but not any more than overall inflation is."

Sylvester Schieber, benefits research director at Wyatt Co., a consulting firm, said medical price rises caused only about a third of the increase in health spending in the 1980s. He said 42 percent was general inflation and 22 percent was from increased volume of services.

And economists caution that the medical component of the consumer price index no longer reflects actual spending patterns for some major items like hospital charges. The index is still based on list prices for hospital rooms, for example, although most large insurers get discounts, noted Joseph P. Newhouse, a professor of health policy and management at Harvard University.

Henry J. Aaron, economic studies director of the Brookings Institution, the Washington research center, said that even as hospital rates rise, patients spend fewer days there, on average, and the quality of service is up. He added, "We can't measure the restoration of health. We don't know if it lines up with the number of hospital days."

Newhouse lamented that "we don't have a measure of medical care price increases. We badly need one," he adds. "The public believes much of the problem is in prices."

On the positive side, most experts agree that the quality of health care has been rising markedly, at least for those who can afford the expensive new tests and surgical procedures that spur much of the growth.

Another plus factor: The expansion has generated jobs. Even while the economy hemorrhaged 1. …