Is Obamacare Lowering Health Care Costs?

Is Obamacare Lowering Health Care Costs?
February 13, 2013

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

“Already,” President Obama claimed last night, “the Affordable Care Act is helping to slow the growth of health care costs.”  That’s consistent with this report in the New York Times: 

“In figures released last week, the Congressional Budget Office said it had erased hundreds of billions of dollars in projected spending on Medicare and Medicaid. The budget office now projects that spending on those two programs in 2020 will be about $200 billion, or 15 percent, less than it projected three years ago. New data also show overall health care spending growth continuing at the lowest rate in decades for a fourth consecutive year.”

Wait, is that right? Health care spending growth growing at a low rate precedes Obamacare? It was so effective, it worked before it even passed!

But let’s talk about that “health care costs” issue. The CBO calculations the NYT references are here.  They show about a $200 billion dropoff, as the NYT says. But CBO also says that is due to three reasons: 1. reduced Medicare payments to providers, 2. reduced Medicaid DSH payments (payments to hospitals, scaled back under Obamacare), and 3. states not implementing the Medicaid expansion... none of which would represent actual reductions in health care costs.

By that measure, Obama could reasonably claim that nonenforcement of the Affordable Care Act is helping slow the growth of health care costs, since fewer states than expected will be expanding Medicaid!

But what do we mean when we say “health care costs”? Do we mean costs to the taxpayer? Under Medicaid, that’s only going up, according to CBO:

“Under current law, federal outlays for Medicaid will rise steadily as a share of GDP over the next 10 years, from 1.8 percent in 2014 to 2.2 percent in 2023, by CBO’s estimate. That rise is attributable in part to expected increases in the cost of Medicaid’s benefits per beneficiary and in part to the fact that many states are expected to expand Medicaid coverage significantly, in keeping with provisions of the Affordable Care Act. In addition, spending on subsidies that will help people purchase health insurance through exchanges, along with related spending, is projected to increase from 0.1 percent of GDP in 2014 to 0.5 percent 10 years from now.”

These subsidies are growing in cost because the insurance they’ll used to purchase is getting more expensive, too. But more on that in a moment. First, consider that CBO’s slightly more optimistic estimates for Medicare, which again count on Congress sticking by reduced payments, is also the most uncertain aspect of their prediction:

“Uncertainty also surrounds myriad technical factors that can substantially affect CBO’s baseline projections. For example, spending per enrollee for Medicare and Medicaid—which generally has grown faster than GDP—is very difficult to predict. If per capita costs in those programs rose 1 percentage point faster or slower per year than CBO has projected for the next decade, total outlays for Medicare (net of receipts from premiums) and Medicaid would be about $650 billion higher or lower for that period."

The Medicare Trustees themselves expect the cost diminishment on that side to be a historic anomaly driven by the economic downturn:  

"For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range or the long range.”

CBO has previously said that the Medicare HI Trust Fund will be insolvent at 2023, which of course assumes no SGR fix, IPAB’s success, productivity adjustments that cause 15 percent of hospitals to close by 2019, and continued historically low outlays. You can decide for yourself whether these assumptions are reasonable.

Of course, that’s all taxpayer-based costs, which are harder to see. As for what most individuals and families perceive as health care costs in their lives – namely, their insurance premiums – these have skyrocketed under President Obama, particularly in the individual market.  Much of this is due to insurers responding to Obamacare’s policies, building in their increases before it takes full effect.  

“We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey, New York and Vermont already pay well over twice what citizens in many other states pay. Consumers in Maine and Massachusetts aren't far behind. Those states will likely see a small increase. By contrast, Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the largest increases—somewhere between 65% and 100%. Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%... Although President Obama repeatedly claimed that health-insurance premiums for a family would be $2,500 lower by the end of his first term, they are actually about $3,000 higher—a spread of about $5,500 per family.”

Of course, Obama always couches this promise in terms relative to what the cost would’ve been without his signature legislation. Fine. Then in order to believe that Obamacare is indeed slowing the growth of health care costs – for the taxpayers, for businesses, for individuals and families – you have to believe these costs would’ve absolutely exploded in its absence. And if you believe that, you’ll probably believe anything he tells you.

 

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)