RALEIGH – I had read elsewhere that annual inflation in medical costs had been moderating in recent years, and even wrote about the proliferation of consumer-driven health care and its effect on consumption of medical services.

But until I read a Wall Street Journal op-ed last week by J.D. Kleinke, an American Enterprise Institute fellow, I had never seen the trend illustrated so effectively. Follow the link and check out the graph, which depicts annual changes in U.S. health care spending since 2000.

During the 1990s, inflation in American health care also moderated for a bit as health maintenance organizations (HMOs) and strong preferred-provider organizations (PPOs) achieved a significant share of the market for health plans. HMOs in particularly proved to be effective in ratcheting down costs, at least in the short run, but they also proved to be unpopular. Many patients didn’t want to have their choice of provider so constrained and practice decisions dictated by a central authority.

HMOs receded. Partly as a result, health care inflation ramped up again. In 2000, total health care spending rose by about 7 percent. The rate exceeded 8 percent the following year and topped 9 percent in 2002.

That proved to be the peak rate. Since then, the rate of medical inflation has steadily declined, through years of economic boom and bust. The rate was below 4 percent in each of the past two years, according to federal data cited by Kleinke.

He identifies two potential causes that fit the timeline: 1) the introduction of effective new drugs for chronic physical and mental illnesses that proved less costly than alternative treatments; and 2) the spread of consumer-driven health care, driven largely by the 2003 federal Medicare expansion that also authorized full-scale health savings accounts.

I know from personal experience, both as a patient and as an employer, that consumer-driven health care changes incentives. When consumers bear more of the upfront cost of medical care directly, in cash or debits from health savings, rather than indirectly through insurance claims, they are more judicious in what services they buy, and at what price.

Combine these incentives with rejuvenated PPOs and emerging alternative models for care such as minute clinics, and you have a recipe for progress, as Kleinke wrote:

Suddenly, a $5 generic drug might work just as well as a $50 branded one. People concluded that going “out of network” for an extra $100 out of their own pocket might not be worth it. It turned out that a nurse practitioner in an urgent care clinic can spot an ear infection for $30 a whole lot faster than an emergency-room physician can for $1,000. There were many new drugs available, many others going generic and some, such as Tagamet for ulcers and Claritin for allergies, even going over the counter.

Much more has to be down to rein in health care costs, of course. Even the lower inflation rate still represents lots of perverse incentives and lost opportunities. It represents services of questionable value bought at excessive prices. But the recent trends point the way towards solutions – which is precisely why many of us are so vociferously against the implementation of ObamaCare, which is designed to obstruct the growth of consumer-driven health care.

And no, I’m not exaggerating.

Hood is president of the John Locke Foundation.