The cost curve is bending. Does Obamacare deserve the credit?

May 31, 2013

There was a time when all anyone in Washington wanted to talk about was “bending the health-care cost curve.” Forget covering the uninsured -- the ultimate test of the Affordable Care Act would be the trajectory of health-care costs.

But Washington has a short memory. That whole “curve” thing was years ago. Meanwhile, we’ve turned our attention to other things, like “Fast & Furious 6.”

Yet, quietly, the cost curve has begun to bend.

If it bends the cost curve, it won't just be tea party members passing out Obamacare bumper stickers. (REUTERS/Jessica Rinaldi)
If it bends the cost curve, it won't just be tea party members passing out Obamacare bumper stickers. (REUTERS/Jessica Rinaldi)

“National health spending grew by 3.9 percent each year from 2009 to 2011, the lowest rate of growth since the federal government began keeping such statistics in 1960,” reports the Kaiser Family Foundation. Early data suggest that the numbers held into 2012. So the curve hasn’t just bent; it has bent more than ever.

In a new paper, Harvard University scholars David Cutler and Nikhil Sahni calculate that if those numbers hold over the next decade, the government will save up to $770 billion, employers will save up to $430 annually on each covered worker and households will spend up to $290 less on annual health costs. “Slow health care spending growth might thus bring much-needed relief throughout the economy,” they write.

Ah, that pesky “might.” Here’s the catch: The curve is bending, but we don’t really know why, and we don’t know if it’ll stay bent.

Is it the economy, stupid?

The pessimistic case goes something like this: You may not have noticed, Mr. Health Wonk Guy, but the economy has been in the pits since 2008. When the economy craters, people spend less on stuff. One thing they spend less on is health care. We haven’t bent the health spending curve down so much as we’ve bent the unemployment curve up. As the economy recovers, so, too, will health spending -- and it might even accelerate as people seek care they’ve put off over the past few years.

The pessimistic case was conventional wisdom in 2011 when people first began noticing the downward trend in health spending. That argument began to weaken as more data streamed in through 2012. Today, few health experts really buy it. There’s no doubt that the recession hit the health-care sector. The Kaiser Family Foundation and the Center for Sustainable Health Spending at the Altarum Institute credit the bad economy for three-quarters of the slowdown in health spending. Cutler and Sahni say it explains only 37 percent. Today, most everyone agrees that there’s more to the slowdown then just a bad economy.

For one thing, health costs began slowing in 2005 or so. Attributing everything after that to the recession doesn’t quite fit the data. Is there really a good reason, for instance, that the recession would lead to a sharp drop in Medicare spending? After all, seniors aren’t getting Medicare through their jobs, and there’s relatively little cost-sharing in the program. Medicare’s famously conservative actuaries are convinced that something deeper is changing. They now project that Medicare spending per person will grow significantly more slowly than the economy in the coming decade.

The health system, the optimists say, is adapting. The portion of workers with high-deductible plans has increased by 24 percent since 2006. We’ve begun implementing the Affordable Care Act’s Medicare cuts, with no evident ill effects. Once-expensive drugs have lost their patents and moved into the lower-priced generic market. Medicare’s hospital readmission rates fell by more than 5 percent from 2007 to 2010, and the Centers for Disease Control and Prevention found that central-line (catheter) infections declined by more than 40 percent from 2008 to 2011. The recession doesn’t explain any of this.

Thanks, Obamacare?

Does the Affordable Care Act deserve any of the credit? There are two answers: The first is “maybe a bit.” The second, “who cares?”

The case for the Affordable Care Act’s influence is convincing but limited. The strongest evidence is those declines in readmissions and central-line infections. Obamacare cuts payments to hospitals with high rates of either. Voila! All of a sudden hospitals have fewer instances of both. “That the readmissions rate and infections are falling is probably more than coincidentally tied to the fact that Medicare is now penalizing hospitals for them,” Cutler said.

The law might be playing a significant role merely by signaling that big changes are under way in how the government pays for health care. Getting paid more for doing more is out. Getting paid more for improving the health of your patients is in. Hospitals and other providers are adapting to the new regime with changes that are producing systemwide savings.

“Providers are getting the message that they need to figure out how to work smarter and provide better care for people at lower cost because they all know the trend can’t continue,” said Richard Baron, who stepped down in April as group director for seamless care at the Centers for Medicare & Medicaid’s Innovation Center. “Even now they’re reorganizing care to prepare for this future where the federal government is moving into a variety of programs designed to reward value not volume. That can sound like a cliche, but when I talk to people delivering health care, they all understand the rewards are moving in that direction, and they’re all looking for ways to build organizations that fit that.”

A similar case can be made on the insurance side. The tax on expensive, employer-provided health plans doesn’t kick in until 2018. But it’s already having an effect. The New York Times reported, “Companies hoping to avoid the tax are beginning to scale back the more generous health benefits they have traditionally offered and to look harder for ways to bring down the overall cost of care.” That, too, is cutting costs.

Keeping the pressure on

So you can argue that the Affordable Care Act is contributing to lower costs now. But there’s a stronger case that it will do so in coming years. If hospitals let readmission rates rise, they’re going to take a financial hit. If employers begin offering pricier insurance coverage, they’ll pay a hefty excise tax. If Medicare spending rises too much, the Independent Payment Advisory Board will have fast-track authority to reduce it. And some of the law’s more exciting cost-control experiments -- including accountable care organizations, bundled payments, medical homes and value-based purchasing -- are only just beginning to come online.

That’s why it doesn’t really matter if Obamacare is responsible for the recent bend of the cost curve. What matters is that it will make it easier to keep the curve bending down in the future.

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Dylan Matthews · May 31, 2013