Yes, Obamacare is driving US health care costs lower

Early signs suggest that US president Barack Obama’s health care overhaul is driving the cost of healthcare lower, according to Goldman Sachs analysts, spotlighting yesterday’s data on consumer spending and prices.

“Cuts to Medicare payments that were used to finance some of the new benefits under the law have resulted in significant slowing in the health-related components of the PCE price index,” wrote Goldman analysts in a note to clients.

They note that the decrease in January health care prices is related to cuts to Medicare, the US program of health care for the elderly, which were made in the Affordable Care Act in order to pay for coverage of the uninsured:

Rather than reducing the quantity of services provided, the law mandates a smaller annual increase in the prices Medicare pays for services. This increase happens once a year in January or October, there should be little additional effect on the change in prices from the ACA for the next several months, though we expect the effect on the level of prices to persist.

While the Obamacare overhaul remains controversial in the US, budget geeks are nearly unanimous in spotlighting runaway health care costs as a long-term driver of the US national debt. And cross-country comparisons show that US health care spending is clearly out of line with international norms.

In other words, early indications that the Affordable Care Act is starting to control health care inflation is a good thing. 

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