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As Millions Get Covered, Health Cost Growth Slows

  One More Reason To Feel (Pretty) Good About Obamacare by Jonathan Cohn


America’s health care bill is turning out to be a lot smaller than economists thought it would be by this point.

That’s the conclusion of a new paper by John Holahan and Stacey McMorrow, researchers at the non-partisan Urban Institute. The aim of the paper is to tally up all the expenditures the country will make on health care between 2014 and 2019, whether it’s through private insurance, government programs like Medicare and Medicaid or direct out-of-pocket payments from patients to doctors.

These are the numbers experts generally have in mind when they say things like “health care costs are bankrupting the country.” The fear is that spending more and more on health care will leave us with less and less money for other things, whether it’s stuff we buy for ourselves (everything from food and shelter to vacations and cars) or institutions we support and investments we make indirectly through taxes (like schools, the military and Social Security checks).

National health expenditures are almost always increasing from year to year and, generally, they have increased even more quickly than spending on other goods. When the Affordable Care Act became law, both its critics and quite a few independent analysts predicted the trend would only get worse. As the logic went, every time one of those newly insured people walked into a doctor’s office, got admitted to a hospital or took an expensive drug, that person would be adding to the U.S. health care bill. Multiply that effect by a few million and, presto, you have an aggregate bill for medical goods and services that’s higher -- probably a lot higher -- than previously expected.

It was a perfectly reasonable prediction. But it doesn't seem to be coming true.

In 2010, just after the health care law passed, the government’s official actuaries at the Centers for Medicare and Medicaid Services predicted that total national health spending for the five-year period starting in 2014 would be $23.6 trillion. Using the latest data, Holahan and McMorrow have calculated that spending over that interval will probably be $21 trillion -- in other words, the total will be $2.6 trillion less than the government's number crunchers thought it would be.

projections of health care spending

Source: Urban Institute 

That’s a pretty big windfall. You can think of it as $2.6 trillion that the country had expected to spend on health care but will likely have available for other purposes.

The finding is consistent with other recent data, like the Kaiser Family Foundation/HRET annual survey of employer-sponsored premiums (which have been rising at very slow rates) and the government’s official data on overall health care spending from 2010 through 2012.

The question is why this slowdown is happening. The economy is the most obvious factor. The lingering effects of the recession have left people with less money to spend and less enthusiasm for spending what they have. Overall, Americans have cut back on medical care, just as they’ve cut down on all consumption.

But the economy isn’t the whole story. The out-of-pocket expenses that come with private insurance are getting bigger. For better or for worse, that’s given people financial incentive to think twice before seeking medical help. There's been a relative dearth of expensive new technologies, although that may be changing just now with the introduction of some pricey blockbuster drugs. Meanwhile, the government has reduced what it pays hospitals, insurers and some other parts of the health care industry, in an effort to scale back what many experts consider a thinly veiled form of corporate welfare via Medicare.

Most intriguing -- and, over the long run, probably most important -- is that the providers of medical care are changing the way they do business, in ways that should both make people healthier and make the system as a whole more efficient. Hospitals, for example, appear to be doing a much better job of preparing patients for discharge and then following up with those patients afterward. Those patients are less likely to get sick and need costly readmission within 30 days.

Does Obamacare have something to do with this? Probably. Notwithstanding President Barack Obama’s (foolish and misleading) campaign promise to reduce the average family’s premiums by $2,500, the Affordable Care Act’s supporters never said that national health care spending would go down per se. They simply predicted that it would grow more slowly than it had in previous decades -- that they would “bend the curve” on health care costs.

It would happen, they said, because of a series of modifications to Medicare and to tax policies that the law contains. Early signs, like that dramatic drop in hospital readmissions, suggest strongly that those efforts are having an effect. In the new paper, Holahan and McMorrow agree that the Affordable Care Act has helped, although they caution that it’s too soon to assess the law's influence definitively -- or to say whether, right now, the savings are sufficient to offset the new spending the law has caused.

“Obamacare is increasing health spending as more people get insurance," Larry Levitt, senior vice president at the Kaiser Foundation and a close observer of the health care system, told The Huffington Post. "But it's also helping to push spending down by encouraging greater efficiencies. That second effect is looking like it might be bigger than the government bean counters expected when the health law passed.”

Of course, none of this means individual consumers are saving money in ways that they perceive clearly -- or that they particularly like. A smaller-than-expected premium increase, which is what the typical employee of a large company has experienced for the past few years, is still a premium increase. And while some people, mainly the newly insured, have far more financial protection from bills than they did previously, others have higher co-payments and deductibles -- which means they’re still paying a ton of money for doctors, hospitals and drugs if they get sick.

Lower health care costs can mean less pressure on government budgets and corporate ledgers, not to mention higher margins for insurance companies. Those should, in turn, mean lower taxes, higher wages and lower premiums for consumers. But those benefits can trickle down slowly and unevenly. And sometimes less spending leaves individuals or society as a whole worse off -- for example, if it ends up discouraging people from getting care they actually need.

Those are some of the reasons that assessing Obamacare's overall impact is going to take a very long time and quite a lot of argument. But at minimum, this latest paper is one more reason to think the law’s critics were wrong to predict it would have catastrophic effects on spending. It's also a reason to think Obamacare’s more sophisticated efforts at re-engineering medicine just might be working.

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