AMIDST ALL the applause for the declining rate of inflation, you need to keep it in mind that there is one large, unyielding exception. The price of medical care is still soaring. It's true in all of the rich industrial countries. None of them has found a good way to hold down medical costs. The past couple of years have demonstrated that inflation in this realm seems to be impervious even to recessions.
In the year through last November--the last month for which figures have been computed-- medical costs rose twice as fast as the general rate of inflation as it is reflected in the consumer price index. The cost of hospital care in particular rose three times as fast as the CPI.
There has been an interesting pattern over the past decade to these rises in medical care prices. Through 1977, they rose conspicuously faster than the CPI. Then, from 1978 through 1980, they rose conspicuously more slowly than the CPI. Beginning in 1981, they have once again risen much faster than the CPI. How do you explain that?
In 1977, shortly after taking office, President Carter proposed legislation to impose mandatory cost controls on the health industry. The hospitals opposed it vehemently, arguing that they could hold down their costs much more effectively on a voluntary basis. The voluntary restraints turned out to be remarkably effective--as long as the industry was under the threat of legislation. But in 1980, the country elected a president who was flatly against price-control legislation. Within a year, while the inflation was beginning to diminish in most consumer prices, it was accelerating in the hospitals.
The Reagan administration earlier promised a program before the end of 1982 to hold down medical costs, but it has missed its deadline. The Department of Health and Human Services has forwarded a number of ideas to the White House. One suggestion is to limit the tax exemption for health insurance premiums. Another is to require a larger direct contribution from patients. But the White House does not seem to be in any great hurry to make the final hard choices. The financing of medical care is only slightly less sensitive, as a political concern, than the financing of Social Security.
Hospitals are right in saying that voluntary restraint on their part is infinitely better than cost-control legislation. Unfortunately, in the absence of pending legislation, hospitals do not seem able to enforce any real restraint on themselves. In the year through November, the cost of housing in this country, including heating and utilities, rose 4.9 percent. Food prices rose 3.4 percent. The cost of transportation rose 2.3 percent. But the cost of medical care was up 11 percent.