“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.”
–President Obama, news conference, Nov. 14, 2013
There was a lot to chew over in President Obama’s news conference announcing an administrative fix to allow people in the individual insurance market to temporarily keep plans that currently might fall short of the Affordable Care Act’s mandates. We will note that his proposed fix is a tacit acknowledgement that an aide’s tweet originally blaming insurance companies was wrong, as we had pointed out last month.
Interestingly, the president was also less precise than the White House’s tweet on Wednesday, claiming that “in the first month more than 100,000 Americans successfully enrolled in new insurance plans.” That’s not correct, since as the tweet put it, they “selected a plan”—but an unknown percentage have not actually made the purchase.
But for this column, we are going to focus on the president’s claim that the Affordable Care Act “has helped the cost of health care grow at its slowest rate in 50 years.” In his State of the Union address in February, the president made a somewhat less sweeping statement — “Already, the Affordable Care Act is helping to slow the growth of health-care costs.”– that yielded him two Pinocchios. So has anything new emerged to change that assessment?
There is no dispute that health care spending is growing at its lowest level since the 1960s. From 2009 to 2011, the annual rate of increase for national health care expenditures was around 3.9 percent, and the Medicare actuaries project that it was 4 percent in 2012 and will be 3.7 percent in 2013. (Table 3.)
The issue is whether the Affordable Care Act, which was signed into law, had much to do with it. The increase in health care spending in 2009, before the law was enacted, was just 3.9 percent as well.
The president, in his comment, used the word “helped,” which is sufficiently vague that in theory it could mean any impact, no matter how slight. Yet he also cited this as a reason for not walking away from the law, which suggests he thinks it had more than a modest impact. In fact, some listeners might interpret his statement as suggesting the law has had a significant impact. However, “help” could be also simply mean “contributed.”
There is another wrinkle. In his public comments, the president refers to health-care “costs.” We had initially assumed that he was referring to something called growth in health-care expenditures, which is what most researchers study.
Yet an administration official explained that the president, in using the word “costs,” was referring to growth in prices. The White House Council of Economic Advisers has constructed a price index from a weighted combination of four personal consumption expenditures price indices: health care (which includes most inpatient and outpatient care), pharmaceutical and other medical products, therapeutic appliances and equipment, and net health insurance.
Sorry if this sounds too technical, but essentially it means that the index measures whether the cost of these items increase, not whether overall health care spending increases. This is important when considering some of the research on this issue. For instance, the Medicare actuaries predict growth in health care expenditures will spike starting in 2014 because of the implementation of the Affordable Care Act — a one-time boost which the administration official concedes could last at least three years — but the administration’s price index only looks at increase in costs, not increase in quantity.
By any measure, the trend is impressive. The administration’s health care price series averaged 3.2 percent annual growth from March 2000-March 2013, and just 1.8 percent annual growth from March 2013-present.
Meanwhile, experts puzzling over the slowdown in health care expenditures have not reached a consensus. Studies focused on the early part of the slowdown have tended to emphasize the impact of the Great Recession, but more recent studies have suggested the trend is permanent.
Here’s a sampling of some of the analysis.
“The recent recession had an immediate and noticeable effect on the health sector because of high unemployment, loss of private health insurance coverage, and a reduction in the resources available to pay for health care. All of these factors contributed to historically low growth in aggregate health spending during 2009–11 … Although it is clear that the Affordable Care Act contributed to shifts in spending for payers and services, there is no discernible impact of the legislation on aggregate health spending trends.”
“About three-quarters (77%) of the recent decline in health spending growth can be explained by changes in the broader economy….Changes coming under the ACA could also affect these trends significantly. Increases in coverage will induce a modest, one-time bump of a couple percent in spending as people who were previously uninsured get insurance and better access to health services. This will likely coincide with an expected economic recovery, so higher growth rates in health spending due to that recovery should not be attributed to the ACA simply because of the coincidental timing.”
“Although the pre-recession spending slowdown may have been a spontaneous response to consistent growth in health care costs that exceeded the growth in incomes, we suggest that a decade-long slowdown in economic activity was a major contributor. Specifically, we propose that declines in real incomes and a shift towards less generous insurance arrangements have slowed the growth in provider revenues and forced cost-containment efforts. Some of the more recent payment and delivery system reforms may help to sustain this slow growth, but this remains to be seen.”
“Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist—a change that, if borne out, could have a major impact on US health spending projections and fiscal challenges facing the country.”
“We find that the 2007–09 recession, a one-time event, accounted for 37 percent of the slowdown between 2003 and 2012. A decline in private insurance coverage and cuts to some Medicare payment rates accounted for another 8 percent of the slowdown, leaving 55 percent of the spending slowdown unexplained. We conclude that a host of fundamental changes — including less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency — were responsible for the majority of the slowdown in spending growth.”
The White House referred The Fact Checker to a recent opinion article in The Washington Post, written by Harvard health-care expert David Cutler, who had advised the president’s 2008 campaign and who also co-wrote the paper that was the source of the candidate’s controversial pledge to reduce annual health costs per family by $2,500.
In the article, Cutler mentions a number of ways he believes the law has begun to affect health-care spending. “If the early indications are any guide, we should be pleased with how the new health law is affecting what we pay for care,” he argued.
In an e-mail. Cutler acknowledged that “there is scientific disagreement on this issue.” But, excluding the recession, he said he calculated that the law was one of the three biggest factors in reducing health care costs: Slowdown in rate of technological change (fewer new drugs that have been patented); increased cost sharing for consumers; and the ACA. He estimated that changes in the Medicare payment rates by itself accounted for 8 percent of the reduction.
“I think the president was being quite accurate here,” Cutler said.
The administration official also pointed to the ACA’s reductions in Medicare spending — estimated at $17 billion in 2013 — as contributing to the slowdown in health care prices. We won’t bore you with the math, but he said that about 1/7th of the post-ACA drop in the health care price inflation could be attributed to the Medicare cuts. He also pointed to a recent economic analysis that found private payers cut their payment rates by about the same amount as Medicare, suggesting possibly an even greater impact.
But the official acknowledged that “a bunch of stuff that has little to do” with the Affordable Care Act has also played a major role in controlling health care costs.
Update, Nov. 20: The White House Council of Economic Advisers released a lengthy report that fully lays out the administration’s argument.
Update, Nov. 25: A former Bush administration official countered with an analysis that argues that Cutler’s reasoning (and CEA’s paper) is flawed. “The public is being told that the ACA is responsible for government actuaries’ improved health spending projections, when an examination of those projections clearly shows that not to be so,” wrote Charles Blahous.
The Pinocchio Test
We try to spare our readers such an expert muddle, but at this point we have to cry uncle and say that the evidence has become too murky to reach a firm conclusion. Clearly, even economists are unsure why health-care inflation has continued to remain low so long after the end of the recession almost five years ago.
It is interesting that the president and his staff have used carefully chosen words (“helped;” “cost of health care”) that keeps him within the realm of fact on an issue on which there is little consensus. Such wordsmithing invites suspicion. The president would do better to acknowledge the impact of the recession and other factors unrelated to the Affordable Care Act before claiming bragging rights.
We plan to continue to follow this issue and will post updates on it as more evidence emerges; we welcome readers to point out compelling new research on this matter. In the meantime, we have to label this as unresolved.
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