More Pain From the ACA: Spending Less on Health Care

Doctor bank(Image: Doctor bank via Shutterstock)If reporters ever run out of people to feature who lost their insurance plan, they may want to spend a minute or two looking at what has happened to the cost of health care over the last five years. It might be harder to compare this story to Hurricane Katrina, but it will have far more impact on people’s lives than a botched sign-up effort at
There has been a remarkable slowdown in health care cost growth during this period. Prior to 2008, per capita health care costs were typically growing at a rate that exceeded the overall inflation rate by 3-4 percentage points. In 2008 per person health care costs were $7,800. The Centers for Medicare and Medicaid Services (CMS) projected that they would rise to $9,770 by 2013, and $13,100 by the end of the projection period in 2018.
The most recent projections show health care costs at $9,220 per person in 2013, a difference of $550 per person or $2,200 for a family of four. The latest projections show per person health care costs in 2018 at $11,770. This would imply a savings of $1,330 per person or $5,320 for a family of four.
This is real money. If a politician gave people a tax cut of this size it would be at the center of their re-election campaign. Yet, the Obama administration has gotten little credit for this sharp slowdown in health care cost growth.
Of course much of this slowdown in cost growth has nothing to do with President Obama’s actions and not all of it is for good reasons. One important reason the country is spending less than projected on health care is the economic collapse in 2008. Millions of workers are still unemployed or underemployed. Many of these workers have lost insurance. Even those who are still insured may find the co-pays and deductibles to be a serious burden and therefore put off care.
That is not a pretty picture, but at this point the weak economy cannot be the primary explanation for slower rate of health care cost growth. Even with the weak economic growth of the last four years the economy is still in better shape at the end of 2013 than it was in 2009. For that reason, it is hard to believe that the economy would be leading more people to delay care in 2013 than in 2009, when the economy was still spiraling downward.
There are other factors that have constrained cost growth, not all of which are positive. Insurers are often getting stricter about the procedures they cover and charging large co-pays. This would be a good trend insofar as it avoids unneeded procedures, but not all of the procedures avoided will be unneeded.
Even with these important caveats, it is hard not to see the slowing of cost growth as a very good thing. This will free up money for other purposes, including providing health care to a greater segment of the population.
The extent to which the Obama administration can realistically take credit for is questionable. Some of the reforms put into law with the Affordable Care Act, most importantly basing payments on outcomes, likely began to affect the system shortly after passage. In that sense, it is reasonable to give Obama at least some of the credit for slower health care cost growth.
However as practical matter, presidents get held responsible for what occurs on their watch whether or not they were the ones responsible. For this reason, the Obama administration would not be out of line to take credit for the slower pace of health care cost growth since his election.
If that sounds silly, imagine the opposite had happened. Suppose that instead of slowing by 2-3 percentage points, the annual rate of health cost growth had increased by 2-3 percentage points. Is there any doubt that the Republicans would be all over the media yelling about how Obamacare had made health care unaffordable?
We actually don’t even have to speculate about the pattern of credit claiming on such issues. The Republicans have been eager to tout the fact that the cost of the Medicare prescription drug benefit has been far lower than had originally been projected by either the CMS or the Congressional Budget Office. They have attributed this slower than projected cost growth to the Bush administration’s decision to provide the benefit through private insurers.
In reality, the main reason the Medicare drug benefit cost less than projected was that spending on prescription drugs in general rose much less than had been projected. This was in turn attributable to a dearth of innovation in the prescription drug industry. In this context it is more than a bit of a stretch to credit the Republicans’ design of the Medicare drug benefit for the program’s lower than expected cost, but in Washington this claim is taken seriously.
In short, by Washington standards Obama could easily take credit for the sharp slowdown in health care costs over the last five years. In reality, the ACA probably does deserve some of the credit, but regardless of the cause the slowdown is a really big deal. As a result, health care is much more affordable than would otherwise be the case.