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Posted at 3:13 PM ET, 12/ 3/2010

Did managed care work?

By Ezra Klein

The bright moment for private health care in America was the mid-1990s, when the managed care revolution tamed spending growth. Eventually, consumers got angry at HMOs and politicians browbeat them, and -- even though there was never evidence that their members had worse health outcomes -- they gave up on controlling costs and just began passing the cost increases onto employers and individuals. As Aaron Carroll shows, that story looks a lot better when you're looking at health-care spending as a percent of GDP than when you're looking at health-care spending on its own:


Managed care, in other words, is getting a lot of credit that properly belongs to the economic boom of the '90s. Health-care spending didn't stop growing faster than GDP so much as GDP began growing faster than health-care spending. When you look at health-care spending on its own, the cost control is present but much less impressive.

By Ezra Klein  | December 3, 2010; 3:13 PM ET
Categories:  Charts and Graphs, Health Reform  
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You'd think in the mid 90s, with boomer age ranging from 35 to 50, we were at kind of a healthcare sweet spot as well demographically. Boomers having already had their kids and still being young enough not to be expensive to provide health care for.

Anyway, in 29 days the first boomer will sign up for Medicare. How's that as a 'thought of the day'?

Posted by: eggnogfool | December 3, 2010 3:31 PM | Report abuse

That might be right, but even the total spending curve increases at a slower rate during the mid-'90s, which suggests that the observed effect isn't only the result of GDP growth.

Posted by: amiller5 | December 3, 2010 3:55 PM | Report abuse

can't we all use the same argument to refute the liberal fact that "clinton drove surpluses while Bush 1 and Bush 2 drove deficits?"

I'm guessing in 10 years we'll also be saying Obama drove deficits and that won't necessarily be the case.

Anytime you make generalizations like this or try to simplify this you honestly look kind of silly becuase there are so many mitigating factors involved some positive in cost and some negative in cost. Its like looking at a puzzle of 1000 pieces and trying to figure out what it is from 10 individual pieces.

Posted by: visionbrkr | December 3, 2010 4:03 PM | Report abuse

Really Ezra? You can't see the cost curve bend down from the 1980s to the 1990s?

As much praise as the 1990s get, the average growth rate during 1982-1989 (4.3%/yr) was *faster* than 1991-2000 (3.8%/yr).

What was health care as a % of GDP doing from 1982-1989 and 1991-2000? Given faster GDP growth rates in the 1980s, what does that suggest about the growth rate of health care costs in the 1990s versus the 1980s?

Posted by: justin84 | December 3, 2010 4:23 PM | Report abuse

You'll making this way more complicated than it needs to be. All you have to do to answer this question is just look at the actual health care cost inflation numbers. I don't know why you're looking at health care as a percentage of GDP or total health care spending (instead of simply looking at the actual percentage increase in spending). And I'm pretty sure that if you just look at the health care cost inflation numbers, you'll find that health care cost inflation did decrease in the late 90s. In fact, I think you're not looking at the graph close enough. If you look at the blue line for total spending, the slope does actually decrease at the same time that health care as a percentage of GNP held flat (and even reduced some). Decreased slope means decreased health care cost inflation, even if total spending is growing up.

Also, if GDP was growing faster than health care costs, that must mean that health care cost inflation came down. I don't remember the exact numbers, but hasn't health care cost inflation for the past few decades been around 6-8%? Just intuitively, it's not like GDP was growing around 7% during the late 90s (I recall it being around 5% for the second half of the 90s). It might have been higher than usual during the internet boom, but not that much higher.

In any case, you're making things more complicated than you need to. All you need to do is look at the health care cost inflation numbers to answer this question.

Posted by: JamesCody | December 4, 2010 11:20 AM | Report abuse

There's a simpler explanation.

Insurance companies don't take your premiums and stick them under the bed to keep them safe until you get sick. They invest.

When I look at the green line, I see it plateau every time the market is doing well (not just the late 90's but toward the end of Reagan's term as well) and skyrocket when the market tanks.

So they're able to hold the line on premiums when extra money is coming in from their investments, and when their investments go south they avoid losing money by raising premiums.

They're best understood as banks with an additional revenue stream.

Posted by: pj_camp | December 4, 2010 1:10 PM | Report abuse

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