It looks like Obamacare is working

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There are plenty of reasons to be skeptical of initial economic data about healthcare amid the roll-out of the Affordable Care Act, popularly known as Obamacare. (For instance, yesterday’s awful revision to US GDP was largely due to US government estimates of healthcare consumption being way off the mark. Economists expected a big increase under the roll-out of Obamacare, once the law took effect in January. But actually spending declined slightly.)

Still, one marked shift in healthcare data in recent months is worth noting: Healthcare inflation has hit some of its lowest levels in decades.

The best gauge to use to look at healthcare prices is the personal consumption expenditures (PCE) data released by the US Bureau of Economic Analysis. While the consumer price index also has data on healthcare prices, it focuses just on the prices consumers pay. But actual out-of-pocket consumer spending on healthcare is really but a small part of US healthcare spending. (The lion’s share of healthcare spending is done by employers or the US government, which the PCE numbers capture.)

Anyway, here’s the annual price change in healthcare, as measured by the PCE healthcare index, over the last 25 years.


You can see inflation has bounced back from recent lows over the past couple months. (In May it was up 1.8% over the prior year.) But it’s still quite low by recent standards. (Of course, that could change in a few more months, if prices rise sharply.)

Elsewhere, estimates of actual, inflation-adjusted US healthcare spending have been all over the place lately. The Bureau of Economic Analysis said health spending was roughly flat in May. (But that’s really just an estimate—we won’t have hard data to prove that until the next quarterly services survey is published in September.)


So what’s the takeaway? Some, such as the former Congressional Budget Office chief and ex-Obama administration healthcare policy wonk Peter Orzag say the early numbers are an excellent indication that there are reasons to be optimistic about the large-scale effort to overhaul the US healthcare system. (That is, it’s keeping prices down and spending isn’t going through the roof.)

But we are still in the very early days, and in light of the giant revision to US GDP yesterday, it would probably be wise to keep the champagne on ice for a while longer.