Is Obamacare holding down health care costs?

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2013

Here is an interesting article on Obamacare and health care costs. They key question is whether Obamacare is or will control health care costs. My opinion is that in the long run it will not control the total amount we spend on health care, but rather will move those costs around and re-characterize them so as not to appear part of health care itself.

In the article below you can see that we have trouble even defining health care costs. Is limiting what an insurer can spend on administration holding down health care costs? Of course not, that relates to the small portion of premiums unrelated to health care. Does reducing the rate of increase in payments to Medicare providers lower health spending? At best it says that Medicare will pay more in fees per service, but not as much more than without the law. But does it say the number and types of services provided will be less? Does it say some of this lower Medicare spending will not be shifted to the private sector?

These are not health care cost containment activities, they are attempts to manage insurance payments that alone without fundamental changes in the delivery of health care will have adverse consequences. Attempts to limit hospital readmissions and use of the Accountable Care Organization are efforts to manage health care, but they are a long way from proving lasting effectiveness.

Some will argue that tax subsidies make health care affordable for people who buy coverage through a marketplace. Tax subsidies mean some people pay less for their insurance and taxpayers pay the balance; nothing more. The standard argument goes that we insulate people from costs through the tax code because the value of employer provided coverage is tax free and most Americans with employer coverage even pay their portion of the premium on a pre-tax basis. In theory then all efforts to have someone else pay for what health care we buy is counterproductive. That is true for Obamacare where we insulate people from costs in several ways.

Holding down health care costs means providing more efficient health care which means less of some types of care more of other types. It means changing patient habits and perceptions and it means total coordination among all of a patients health care providers. Holding down health care costs has nothing to do with insurance and little to do with the individual fee paid for a service.

How Obamacare May Be Holding Down Costs
27, 2013 | Drew Altman

This column originally appeared in Politico on September 26. Dr. Altman’s future Politico columns will be posted on kff.org one day after publication.

The historic slowdown in health-care costs is continuing. Earlier this month, the government’s actuaries found that total national health spending continues to grow at the lowest rate we’ve ever seen. And our annual employer health benefits survey released in August found premiums up just 4 percent on average for family policies this year, while overall health spending is growing at the slowest rate in 50 years (dating back to when the government first started tabulating health expenditures).

Experts debate how much of the slowdown is due to the weak economy, which causes people to use less health care, and how much is due to changes in health insurance and the health-care system, such as higher cost-sharing or new efforts to limit avoidable tests or hospital days. But the consensus – including the actuaries – is that both factors are playing some role.

What is far less clear is how much Obamacare may also be contributing to the slowdown in costs. Proponents of the law say it is helping to control costs because the cost- containment provisions of the law are working as advertised. These include new limits on how much insurance companies can charge for administration and profits (with rebates to consumers if they charge too much), and state review of rates proposed by insurance companies.

There is solid evidence that these provisions are working as intended, but they mainly apply to the individual and small group markets, just a small slice of the overall health care marketplace. Obamacare also reduced the rate of increase in future payments to providers for Medicare. These reductions are projected to take more than $700 billion out of health spending over the next 10 years, but they haven’t had much effect yet. Other provisions of the law, such as the Medicare experiments in payment and delivery, are still just getting started. Critics of Obamacare, of course, dispute that the law is having any effect on costs because, well, there is basically nothing they like about Obamacare.

Even though its direct effects on system-wide costs may be limited so far, I believe Obamacare is having a significant indirect effect, although cause and effect and the magnitude are hard to prove. (As the actuaries rightly point out, insuring more people will boost the rate of spending growth temporarily, but the effect should be small and short-lived.)

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