Bloomberg News

Recession, Not Obamacare, Cited for Cost Curbs in Study (1)

September 19, 2013

Recession, Not Obamacare, Cited for Cost Curbs in Actuary Study

The Affordable Care Act has never been popular. The bill passed through a Democratic-controlled Congress with no support from the Republican Party and only 37 percent of Americans surveyed said they currently support it, according to an August poll by the nonprofit Kaiser Family Foundation. Photographer: Bill O'Leary/The Washington Post via Getty Images

The four-year slowdown in U.S. health-care spending will end next year, and there is no sign the Affordable Care Act will significantly curb the acceleration in costs, government actuaries said in a report.

President Barack Obama has said the 2010 health-system overhaul helped curb national medical spending, which that year rose 3.9 percent, or about half pre-recession levels. Actuaries at the Centers for Medicare and Medicaid Services, who don’t answer to the White House, said yesterday in the journal Health Affairs that costs eased because of the economy, not Obamacare.

This report won’t be good news for those who have argued that the Affordable Care Act would reduce costs. It provides strong evidence that the slowdown in spending isn’t related to the health law, said James Capretta, a policy analyst at the American Enterprise Institute in Washington who worked in the administration of former President George W. Bush.

“It certainly adds one more piece to the puzzle for those who say ’hey wait a second, this isn’t the final word on how to reform American health care,’” he said in a phone interview.

The report also contradicts independent economists who had attributed spending reductions more to the Affordable Care Act and changes in the health system, such as shifts in employer benefits. The CMS actuaries, who track medical spending by the government, individuals and insurers, examined 50 years of data and found no evidence of costs deviating much from the economy.

“Once the economy improves substantially we would expect health spending to respond in kind,” Gigi Cuckler, an economist who tracks actuarial information at CMS, told reporters. “We’re not convinced that that relationship has been broken in the past couple of years.”

Unpopular Law

The Affordable Care Act has never been popular. The bill passed through a Democratic-controlled Congress with no support from the Republican Party and only 37 percent of Americans surveyed said they currently support it, according to an August poll by the nonprofit Kaiser Family Foundation.

Since enactment, most Republican governors have refused to cooperate with the law’s expansion of Medicaid and an effort by some in Congress to defund the law is taking center stage in the showdown over the federal government’s budget and debt ceiling.

The $1.3 trillion Affordable Care Act seeks to extend coverage to most of the nation’s 50 million uninsured by expanding state Medicaid programs and creating government-run insurance exchanges to buy subsidized medical plans. The law also includes measures that cut drug costs for seniors, cover children with pre-existing illnesses and let young adults stay on their parents’ plans.

Economic Burner

Obama has claimed credit for helping to contain medical spending, saying in his February state of the union speech that “already, the Affordable Care Act is helping to slow the growth of health-care costs.”

“The Affordable Care Act holds insurers accountable for cost increases and encourages smarter care, two factors which are contributing to the slowdown of growth in costs,” said Joanne Peters, a spokeswoman for the Department of Health and Human Services, in an e-mail. “Already consumers have saved billions of dollars in premiums thanks to the rate review, medical-loss ratio provisions, and policies to promote quality and value in Medicare.”

Spending on hospital visits, medications and other care rose 3.9 percent to $2.8 trillion in 2012, roughly matching growth in the previous two years, the report shows. Growth is projected to be 3.8 percent this year and 6.1 percent in 2014.

U.S. Expenditures

Total U.S. health-care expenditures will average 5.8 percent annually through 2022, the actuaries said, about 1 percentage point faster than projected gross domestic product. Health spending will surpass $5 trillion then, accounting for almost one-fifth of the economy, up from 18 percent this year.

The growth figures are well below the spending increase of close to 8 percent before the U.S. entered an 18-month recession in December 2007. Independent economists have tried to explain the slowdown by linking it to the effects of the health law.

David Cutler, a Harvard economist and former Obama campaign adviser, published a study in Health Affairs in May that calculated the recession accounted for only 37 percent of the slowdown in health costs from 2003 to 2011, with the majority of the change being “unexplained.” And Ceci Connolly, the managing director of PriceWaterhouseCoopers Health Research Institute, said last year that the lower growth rates are a “new normal” that can’t be attributed to the recession alone.

“We believe the slowdown is a combination of the recession hangover, actions taken by employers and individual consumers and some structural changes in the industry,” Connolly said yesterday in an e-mail response to questions.

Company Cutbacks

There is evidence to support her argument. Walgreen Co. (WAG:US), Sears Holdings Corp. and Darden Restaurants Inc. (DRI:US) are choosing to give employees a stipend to buy insurance from a private exchange instead of the company providing coverage directly. Trader Joe’s Co., the closely held grocery store chain, has said it will move part-time workers at its 400 stores onto the Obamacare exchanges, and United Parcel Service Inc. (UPS:US) decided to drop health benefits for 15,000 of its workers’ spouses who can get insurance through another company.

Other large employers, including International Business Machines Corp. and Time Warner Inc. have this year moved their retirees into private exchanges from company-picked plans.

Newly Insured

The overall impact of the Affordable Care Act won’t be insignificant either. About 11 million uninsured Americans will gain insurance coverage next year alone, when the core parts of the health law kick in, the actuaries said.

“In our projections we have incorporated some modest savings regarding delivery system reforms,” Cuckler, the CMS economist, said. “At this time, it’s a little too early to tell how substantial those savings will be in the longer term.’

Over the long term, health-care spending has grown about 2 percentage points faster than GDP, according to Stephen Heffler, director of the National Health Statistics Group in the actuary’s office. ‘‘There is a very tight relationship between economic growth and health spending growth,” he said at the briefing.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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