The next Obamacare mirage
The new line is that the health-care law will save money. That's also not true.

Reuters

Article Highlights

  • Supporters of Obama are working overtime to backtrack from his promise.

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  • While Obama admits his "If you like it, you can keep it" comment was inaccurate, the admin hasn't learned.

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  • National spending on health care is projected to reach a record $2.9 trillion in 2013.

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  • This is more than 25% above pre-recession spending levels in 2007.

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  • The only apparent bright spot is that the average annual rate of health-care spending increases has slowed.

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Supporters of President Obama are working overtime to backtrack from his promise that "If you like your health-care insurance, you can keep it. Period." While the president has conceded that this statement was inaccurate, the administration doesn't seem to have learned its lesson. The damage control plan is to spread another falsehood about the Affordable Care Act.

The claim this time is that the health-care "cost curve is bending, and the ACA is a significant part of the reason." That was what David Cutler —an influential Harvard economist and senior health-care adviser in Mr. Obama's 2008 presidential campaign—wrote in a Washington Post op-ed on Nov. 10.

The president jumped on this theme in his press conference on Nov. 14. "I'm not going to walk away from something that has helped the cost of health care grow at its slowest rate in 50 years," he said. On Wednesday, the White House Council of Economic Advisers published a report claiming that "the ACA is contributing to the recent slow growth in health care prices and spending."

These assertions border on nonsense.

National spending on health care is projected to reach a record $2.9 trillion in 2013, according to the Centers for Medicare and Medicaid Services. This is more than 25% above pre-recession spending levels in 2007. Health-care expenditures per capita and as a percentage of GDP are also at record highs, expected to top out this year at $9,216 and 18% respectively.

The only apparent bright spot is that the average annual rate of health-care spending increases has slowed. Over the past three years, growth in health-care spending averaged 3.9% year-over-year, considerably slower than the historical average.

However, annual health-spending growth rates began to decline a decade ago. In 2002, health-care spending grew by nearly 10% in a single year. The growth rate dropped to 7.1% in 2004, 6.2% in 2007, and bottomed out at 3.9% in 2009—the worst year of the Great Recession, where it has stayed ever since. Obamacare was enacted in 2010.

CMS and the Congressional Budget Office attribute the general slowdown in health-care spending increases over the past decade to a variety of factors, including increased cost sharing in private health plans and a slower rate of introduction of new health technology. An Urban Institute analysis points to how the mix of health-care payers has shifted over the past decade toward lower-paying government programs providing a greater share of coverage (particularly Medicaid).

Still, the recession is recognized by objective analysts as the single largest driver of slowed health-care spending in recent years. Many who lost their jobs lost their health insurance. Tight on cash, they opted out of surgery, hospital visits and prescriptions.

Changes in health-spending growth rates traditionally lag about two years behind changes in national economic growth. In September 2013, CMS reported that the depth and severity of the recession was more substantial than expected and revised its spending estimates downward accordingly.

In other words, champions of ObamaCare have little to crow about, once one recognizes that the persistently weak economic recovery has overlapped with the law.

And in the future? According to health-care actuaries at the Centers for Medicare and Medicaid Services, health-care spending will begin spiraling upward again starting next year, as the Affordable Care Act takes full effect. It will reach $5 trillion in 2022, or 20% of GDP, or $14,664 per capita. By 2022, ObamaCare alone is projected to increase cumulative health spending by roughly $621 billion, according to CMS.

In his 2008 campaign, Mr. Obama promised that his health-care reform plan would save a typical family $2,500 in annual premiums by the end of his first term. This was Mr. Cutler's prediction, and it was based on projected rapid returns from larger federal investments in health-information technology, new reinsurance subsidies for high-cost workers, and savings on administrative costs for health insurance.

Those cost savings haven't materialized. Mr. Cutler maintains they will, mostly through other untested reforms, and the White House Council of Economic Advisers report points to potential savings from fledgling Accountable Care Organizations, lower Medicare reimbursements, value-based payments and hospital readmission penalties. To be sure, some of these programs have and may result in small savings, but they had little effect on savings claimed from 2010 to 2013. For example, even the president's Council of Economic Advisers hedges that some of the claimed savings from reduced hospital readmission rates "may not be entirely attributable to the ACA payment incentives."

CMS actuaries find that any positive effects of the ObamaCare delivery system experiments on the cost of health care "remain highly speculative." When they compare their September 2013 projections with earlier estimates in April 2010, these actuaries find that the law would increase national health spending higher than previously expected by an additional $27 billion in 2019 alone.

To argue that the Affordable Care Act has been and will be a key driver of slower health-care spending is irreconcilable with the most basic facts about such spending over the last decade, as well as with the judgment of the executive branch's own team of actuaries responsible for health-care accounting and future projections.

Mr. Miller is a resident fellow at the American Enterprise Institute and former senior health economist on the Joint Economic Committee. Ms. McCloskey is program director of economic policy at the American Enterprise Institute.

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Thomas P.
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Abby
McCloskey

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