In today’s contentious political climate, when hardly anyone agrees on anything, here’s a rare subject of consensus: Health spending is slowing, and almost everyone thinks that’s a good thing.
Aside from relieving pressures on federal and state budgets, it could help reverse stagnant wages by moderating the cost of employer-paid insurance. Compensation would shift from insurance to wages. What the experts don’t agree on is who (or what) caused the slowdown and whether it will continue.
First, the basic figures. In each of 2009, 2010 and 2011, U.S. health spending increased a modest 3.9 percent, virtually identical with the slow growth of the economy (gross domestic product, or GDP). So health spending remained steady at 17.9 percent of GDP after years of increases. Almost no one predicted this.
Not surprisingly, the Obama administration suggests that the Affordable Care Act (“Obamacare”) is a main cause. “As ACA Implementation Continues, Consumer Health Care Cost Growth Has Slowed” is the headline of a recent White House blog post by Alan Krueger, head of the Council of Economic Advisers. Many statistical sources, he notes, confirm the slowdown.
As of May, actual health care prices (hospital admissions, doctors’ visits, drugs) had risen just 1.1 percent over the previous year, “the slowest rate of increase in nearly 50 years,” Krueger reports. Meanwhile, the Bureau of Labor Statistics survey of business compensation finds that “real” (inflation-adjusted) health insurance costs rose 1.8 percent annually from the end of 2009 to the end of 2012, down from 2.2 percent from 2006 to 2009.
But is Obamacare responsible? Be skeptical.
To be fair: Krueger never actually makes that claim. The blog post is something of a sleight of hand. It simply says that the spending slowdown and the ACA’s implementation have coincided. There’s no explicit language linking the two, though unsuspecting readers would surely take away that message. The post is both politically self-serving and intellectually defensible.
Among the skeptics is economist Timothy Taylor, whose “Conversable Economist” blog is consistently nonpartisan. In a post, Taylor notes that the ACA “is mostly not yet implemented,” casting doubt on its impact. He also cites several studies indicating that the slowdown has complex origins.
One study comes from the Organization for Economic Cooperation and Development (OECD), a group of 34 mostly rich nations. Growth in health spending has collapsed in most of its member countries, says the OECD. A global slowdown calls into question Obamacare’s role.
In some countries, says the OECD, acute economic crises have forced steep cuts in government health spending. In both 2010 and 2011, Greece’s real health spending dropped 11 percent. Elsewhere, slowdowns seem to accompany weak economies. In Canada, real health spending increased an average of 4.6 percent annually from 2000 to 2009 but fell to 3 percent in 2010 and 0.8 percent in 2011. Both government and private health spending subsided in many countries, says the OECD.
The recession may explain the U.S. slowdown. Even the insured may have postponed some care to save out-of-pocket costs. As the number of uninsured rose, some care may have been foregone altogether. Or people may have moved from private insurance to Medicaid, a federal-state program for the poor. This would dampen spending, because reimbursement rates are lower for Medicaid than for private insurance.
A second study was done by Charles Roehrig and colleagues at the Center for Sustainable Health Spending in Ann Arbor, Mich. In a 2012 article for the New England Journal of Medicine, they argued that the slowdown began in 2005, well before President Barack Obama’s election. That, too, would seem to limit Obamacare’s influence.
The study attributed the slowdown to “structural” changes, including: use of less expensive generic drugs; higher patient copayments and deductibles, which discouraged some care; and lower administrative costs in doctors’ offices and hospitals.
But Roehrig doesn’t completely dismiss Obamacare’s effect. It may have inspired a general cautiousness. “The industry is looking around and saying, ‘We’ve got to cut costs,’ ” he said in an interview.
Will the spending slowdown continue? At least three forces favor a speedup: the start in 2014 of most of Obamacare — as more people get insurance, they use more medical care; an increasingly older population — average health costs for those 65 and older are more than triple those for people aged 25 to 44; and the economic recovery, which may extend employer-paid coverage to more workers.
A slowdown that overcomes these pressures would suggest major “structural” changes and not just temporary savings from the recession.