The Corner

The Government’s Own Actuaries Think Obamacare Is Raising, Not Lowering, Costs

How many times have you heard that the Affordable Care Act has been successful at holding down health-care-cost growth? A lot, I bet. It’s a claim, as Yuval Levin points out below, that has been made regularly by administration officials and pundits alike. Here is White House advisor David Cutler in a recent Washington Post’s piece called “The health care law’s success story: slowing down medical costs.” He writes:

Before he was criticized for his statements about insurance continuity, President Obama was lambasted for his forecasts of cost savings. In 2007, Obama asserted that his health-care reform plan would save $2,500 per family relative to the trends at the time. The criticism was harsh; I know because I helped the then-senator make this forecast. Yet events have shown him to be right. Between early 2009 and now, the Office of the Actuaries at the Centers for Medicare & Medicaid Services has lowered its forecast of medical spending in 2016 by 1 percentage point of GDP. In dollar terms, this is $2,500 for a family of four.

Chuck Blahous responds to this paragraph in his column at Economics 21 this morning. Blahous, as Yuval explains, consults the evidence and calls the piece a ”particularly egregious example” of distorting the data:

To see why this is wrong, it is useful to break down this paragraph’s thesis into its component parts. Specifically, it claims that:

  • The President’s previous assertions that his “health-care reform plan” would “save $2,500 per family” have been “shown” “to be right,” and that;
  • This is proved by the fact that the CMS actuaries have lowered, between early 2009 and now, their forecast of medical spending in 2016 by $2,500 per family.

For this paragraph to be correct, the ACA must be the reason the CMS actuaries have lowered their 2016 health spending projections. That is flatly untrue.

You should read Blahous’s whole piece, but here are a few important points to highlight. First, there is no denying that the growth in health-care costs has slowed. However, a look at the national health-spending data shows that the slowdown in cost inflation began in 2003, and has paused since 2009. The president’s law, passed in 2010, can’t be responsible for that reduction. But when cost growth stayed low since 2009, the Centers for Medicare & Medicaid Services (CMS) did revise its estimates, after the passage of the ACA, there’s no denying that. But as Blahous explains, the CMS actuaries have actually explained the reasons for those revisions, and their report breaks them down into five categories.  Blahous has the list:

Why did CMS lower its estimates of future health spending? It wasn’t because of the ACA. We know this for a fact because CMS has released a memorandum detailing the reasons for changes in their ten-year outlook since April 2010. Here are the factors CMS cited, and the percentage of the improvement each was responsible for:

1) Medicare/Medicaid/other programs “unrelated to the ACA” (50.7% of improvement).

2) Other factors “unrelated to the ACA” (26.1%).

3) Updated data on historical spending growth (21.8%).

4) Updated macroeconomic assumptions (6.1%).

Now, that adds up to 104.7% of the total improvement. The reason these four factors add to more than 100% is that a fifth factor, the “impact of the ACA,” worked against the improvement. Per CMS, adjusting the April 2010 projections for the subsequent impact of the ACA shows it further increasing spending over ten years (equal to and opposite from 4.7% of the total change). CMS analyzes these numbers through 2019, but we can safely say that through Dr. Cutler’s cited year of 2016 CMS sees the ACA doing even less to hold down cost growth (CMS elsewhere found that 2016 is when the ACA would cause the largest “relative increases” in health spending).

In other words: To the extent that CMS thinks the ACA had an impact on costs, it increased the NHE estimates. 

Now, as Blahous notes, “This of course does not prove that the ACA is doing nothing to lower health costs.” Some  provisions of the law are aimed at reducing costs. Trying to as fair as I can, I will say that the jury is still out of whether or not these provisions will succeed and, if they do, whether they will compensate for all the other provisions in the law that increase health-care costs. However, Blahous’s piece should make you seriously doubt the credibility of anyone who claims that Obamacare has already bent the cost curve. Besides, as my colleague Robert Graboyes rightly argues, we should not just aspire to bend these costs so much as we should try to break them to pieces (he has a plan).

For a broader look at the impact of the ACA on health-care costs, see this must-read piece by Yuval Levin on this issue. The Blahous piece is here.

 

 

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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