–President Obama, remarks on the economy, Northwestern University, Oct. 2, 2014
Remember that 2008 campaign promise touted by then-candidate Obama — that his health care law would reduce the cost of premiums by $2,500 by 2014? As we have noted, he was quickly called out by fact checkers for making a dubious claim based on shaky assumptions.
Moreover, the pledge came with a large asterisk: He was not saying that premiums would drop by $2,500, but that health-care costs per family would be that much lower than anticipated. Of course, the Affordable Care Act turned out to be different from the plan Obama discussed during the campaign, and longer to implement than expected, so the White House in 2011 amended the pledge to say it would yield $2,000 in savings by 2019.
On the campaign trail, Obama rarely made clear his caveat, as this video put together by Republicans shows. But, now, without much fanfare, the old pledge appears to have returned. If you believe the White House’s math, the president is in striking distance of meeting his goal.
Does this really add up? (Note: In a speech on Oct. 9, Obama called it a $1,600 tax cut, but $1,800 is the official White House figure.)
Let’s start by explaining how the White House calculates this figure.
The $1,800 number is derived from data from the Kaiser Family Foundation’s annual employer health benefits survey.
In the KFF data, the average premium for employer-based family coverage increased at an average annual rate of 7.9 percent from 2000 through 2010. The Affordable Care Act was passed in 2010, and so then the White House looks at the growth in premiums from 2010 through 2014. That growth rate has been just 5.2 percent.
If the 2000-2010 growth rate had continued through 2014, then the average premium for employer-based family coverage would have been $18,664 in 2014. In reality, it was $16,834, a difference of $1,830. Presto, a $1,800 “tax cut.”
We ran this logic past several economists and health experts, and received a mixed response — with the more vehement objections coming from more conservative experts. Here are some of the concerns.
First, the administration is measuring the growth rate in four years since 2010, and it is comparing that to growth rate the 10 years before 2010. The problem is that the years 2000 to 2007 saw big jumps in premiums — and then the Great Recession hit. (The White House Council of Economic Advisers shows, in Table 4-1, total national health expenditures grew at an annual rate of 4 percent in 2000-2007 and just 1.9 percent in 2007-2010.) So some experts say that the administration is rigging the figures by comparing the post-recession period to the high rates of the early 2000s.
Update: A reader sent via Twitter this chart published by the Organisation for Economic Co-operation and Development which shows the worldwide economic slowdown let to slower growth in health-care costs, and even declines, in most of the 34 OECD members.
A White House official acknowledged the differences would narrow if the White House had compared the four years after 2010 to the four years before it, but he said that it was preferable to use a measure from a 10-year period. He added that although the ACA was not fully implemented until last year, the reductions in Medicare spending began almost immediately. He said there is evidence that those cutbacks have put downward pressure on providers in the private sector, since Medicare payments are often used as a benchmark. “The ACA is playing a meaningful role” in reducing the growth of health-care costs, he said.
Second, experts wondered if focusing on premiums alone fully captured the recent push by employers to shift costs to employees through higher deductibles and co-pays. The Fact Checker turned to another set of data, the Milliman Medical Index, which attempts to calculate all out-of-pocket costs, not just premiums. Using a similar window as the White House for the comparison data (2001-2010), this actually results in a difference of $2,173. However, using just a four year window, 2006-2010, as a basis of comparison, the savings almost disappear.
So, no matter which data set you use, the window for comparison makes the biggest difference.
Third, there’s the question of calling it a “tax cut.” A $1,800 tax cut actually means $1,800 in your pocket. But this is supposedly $1,800 in extra pay (assuming your employer passes on the savings to you in additional wages or lower premiums), and thus subject to taxes. The White House official said the phrase was intended as “metaphor for the idea that people are going to get something back in their paychecks.”
White House officials stressed that Obama was not trying to suggest that the Affordable Care Act was only responsible for the slowdown in costs. We might argue that the president’s language implied that, but officials noted that The Washington Post report on his Oct. 9 speech in Los Angeles rendered his quote like this: “The Affordable Care Act has helped slow the increase in health-care costs to the lowest rate in decades, Obama said. ‘It’s like a $1,600 tax cut. Nobody notices it, but it’s happening.’”
On Sept. 10, in an article in The Huffington Post, Council of Economic Advisers Chairman Jason Furman cited the $1,800 figure and acknowledged the impact of the recession, but also argued something more is going on:
Exactly what caused the slowdown in health care costs and whether the slowdown will persist is the subject of a vigorous ongoing debate among academics and other observers. The deep recession, which squeezed families’ and businesses’ budgets and caused many to lose employer coverage, almost certainly played some role. As the economy recovers, any effects of the recession in reducing health care cost growth will continue to recede.But, as the Council of Economic Advisers discussed in detail in this year’s Economic Report of the President, the recession is far from the whole story. The slowdown has been dramatic even in Medicare, where beneficiaries are largely insulated from changes in the labor market, not just private insurance. Moreover, the latest slow growth in employer premiums coincided with a year in which the economy was five years past the end of the recession and added 2.4 million jobs, cutting the unemployment rate by 1.2 percentage points.
Larry Levitt, senior vice president at Kaiser, said its data had been used appropriately and agreed the ACA has had an impact. “I think there’s a strong case that the Affordable Care Act has slowed the growth in health care costs, both in Medicare and in employer plans. It’s strongest cost containment provisions haven’t yet fully taken effect, but hospitals and other health care providers have trimmed costs in anticipation.”
But Levitt added: “There are also other factors at play in the health spending slowdown, which predated passage of the health reform law. The economic downturn has certainly played a role, as have other structural changes in the health system, including the growing prevalence of high deductible insurance plans.”
Charles Blahous, who served on George W. Bush’s National Economic Council staff, said that the slowdown in health-care costs must be viewed in context. “It’s true that health care spending is lower than we all expected it to be a few years ago,” he said. “But pretty much everything is lower because we had the Great Recession followed by a weak recovery – economic growth is lower, general price inflation is lower, government revenues are lower, etc. It doesn’t do nearly as much good to slow the growth of health care costs if it is in the context of slower growth in our income and economic output.”
The Pinocchio Test
This is a difficult one to judge, but in the end we lean toward Two Pinocchios. The math adds up, but the results depend a lot on what window of time you use for comparison—and also how much you attribute the difference to the Affordable Care Act. President Obama at least should begin to explicitly acknowledge that there are other factors—and that the reasons for the slowdown are still not fully understood. If slower economic growth is a big part of the reason, that’s going to result in less growth in wages as well.
Thus calling the savings a “tax-cut” is a bit too cute. It’s unclear how much of this money would ultimately end up in an employee’s pocket. Interestingly, the White House would not discuss either Obama’s 2008 pledge or the 2011 rewriting of that pledge, so we can only assume those are figures the White House prefers to forget.
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