In last Tuesday’s debate Mitt Romney suggested that, under Obamacare, health insurance premiums have spiraled by $2,500 per family. Not true. (Hat tip to Healthcarefinancenews.com.)
First let’s get the number right: According to an annual survey of employer plans by the Kaiser Family Foundation and Health Research & Educational Trust, since the Affordable Care Act (ACA) passed in 2010, the average annual premium for family coverage has risen by $1,975 not $2500. $1975 is a hefty sum, but 20% less than Romney claimed.
More importantly, $1,975 represents the combined increase in contributions made by employers and employees— with employers picking up the lion’s share of the hike. “In reality, premiums paid by employees haven’t changed that much.” Factcheck observes. In fact, when you look at the rise in how much employees contributed, “the federal health care law was responsible for a 1 percent to 3 percent increase because of more generous coverage requirements.” In other words, employees were paying a little more, but getting value for their dollars.
After telling a whopper about how much employee’s health care premiums have risen in the past, Romney went on to assert that if Obamacare is “implemented fully, it’ll be another $2,500 on top” of that. His evidence? None.
The Media Spreads the Myths
Yet the media continues to swallow the notion that under “Obamacare” health care spending will levitate. A few days ago, the Washington Post’s Robert J. Samuelson wrote: “Almost every expert agrees that controlling health costs is the crux of curing chronic budget deficits. Health-care spending already exceeds a quarter of federal outlays. With Obamacare’s coverage of the uninsured starting in 2014 and retiring baby boomers flooding into Medicare, the share is headed toward a third.”
As evidence, Samuelson links to a report from the Office of Management and Budget. (OMB) But if you take a close look at the chart on p. 353 of the OMB report that he cites,, you will find that, when Obamacare kicks in, federal outlays for health care, as a percentage of GDP, are projected to rise only slightly from 6.4% of GDP in 2011 to 6.7% in 2014 and 2015. And this is just a guesstimate: recent trends suggest that Medicare spending already has begun to slow–and reform has not yet been implemented.
Moreover, under Obamacare, the only significant jump in federal spending on health comes in the form of Medicaid spending. theAffordable Care Act expands the program to cover the millions of adults who, in most states, don’t qualify for Medicaid, no matter how poor they are, simply because they don’t have children. Beginning in 2014, they will have access to free preventive care that, in the long run, is likely to make them healthier, reducing the long-term cost of their care.
As for retirees “flooding” into Medicare, as I have explained in the past, we really don’t have to worry about a wave of greedy geezers suddenly clamoring for more care than we can afford. The boomers will not grow old all at once;; they will age, just as they were born—over a period of many years. (Hat-tip to Princeton economist Uwe Reinhardt)
Though, as Reinhardt pointed out to the audience at a “World Health Care Conference” that I attended in Berlin in 2008: “If you want to be a popular speaker you need to feed the paranoia of your audience . . . A speaker who wants to grab his
audience’s attention may well scale a chart so that the demographic change looks like a tsunami that could wipe us out.” The truth is much less sensational. (Nevertheless, the myth that the Pepsi Generation is about to overwhelm Medicare is useful to Republicans who want to pretend that we must turn it into a voucher program.)
Medicare Spending and Overall National Healthcare Spending—Both Are Slowing
Earlier this week, former Office of Management and Budget (OMB) Director Peter Orszag laid out the facts about trends in healthcare spending in a Bloomberg column headlined: “Slower Growth in Health Costs Saves U.S. Billions.”
“The U.S. continues to experience a very marked slowdown in the growth of health-care costs,” Orszag writes, “despite some widely misinterpreted new reports. And a growing body of evidence suggests the deceleration is driven by more than a temporarily weak economy — which is good news for the federal budget and for workers.”
Both Orszag and I have been writing about the slow-down in Medicare spending since August of 2011. Now Orsag points out that total “National health expenditures rose just 3.8 percent from August 2011 to August 2012, according to an Oct. 11 report from the Altarum Institute.”
Moreover since health reform legislation passed in 2010 year-over-year growth in medical spending has been sliding. (For example, in August 2012, spending grew by signfiicantly less than 4%–down from more than 4% in August 2011. )
Meanwhile, “ Medicare spending increased by only 3.2 percent in the fiscal year ending in September 2012, according to the Congressional Budget Office. . “These are remarkably low growth rates,” Orszag remarks. “Consider that over the past four decades Medicare spending increased by more than 10 percent a year.”
As I have argued in the past, health care bills are leveling off in part because providers are becoming more cost-conscious. They know that, when reform is fully implemented in 2014, we will be moving away from fee-for-service payment. This means that they will be rewarded for value—providing better care for less..Already, many are beginning to focus on squeezing the waste out of their systems.
“Nevertheless” Orszag observes, the fear-mongers continue to insist that health care reform is having no effect on health care outlays. “Last month, many commentators falsely declared the end of the slowdown — largely exaggerating the findings of a report issued by the Health Care Cost Institute.
That report showed expenses for those with employer-sponsored insurance rose 3.8 percent in 2010 and 4.6 percent in 2011. This modest change was initially described as a “surge.” Orszag notes, “yet by historical standards even 4.6 percent growth is very low– and one shouldn’t make too much of a 0.8 percentage-point change from one year to the next. What’s more, employer- sponsored insurance is only one component of total health spending.
“The Altarum figures. . . also showed a modest acceleration in 2011,” Orszag points out, but then the pace slowed again. “Our data indicate that the 2011 acceleration was not sustained,” the report notes. “Spending growth declined in the latter half of 2011 and dropped even further in the most recent months.”
Looking ahead, he suggests that “There is good reason to think that lower growth will persist even after the economy turns around. For instance, costs have decelerated more for Medicare than for employer-sponsored insurance, suggesting that the shift isn’t entirely caused by the slow economy.”
Recently the Health Management Academy of industry leaders conducted a survey asked chief executives of health- care systems two key questions: What share of your revenue in 2020 will be derived from payment schemes other than fee-for- service? And what share of clinical decisions made in 2020 will be supported by software programs? “The average responses were 62 percent and 95 percent, respectively,” Orszag observes. “In other words, health-system leaders are anticipating two significant shifts over the next eight years: away from fee-for- service payments and toward clinical-decision support. Both of these changes promise to improve value and slow cost growth.
He also points to calculations from two Harvard University economics professors, David M. Cutler and Jeffrey B. Liebman who examined changes in the national health-care spending projections published by the Centers for Medicare and Medicaid Services.
“In January 2009, the centers projected that expenditures would reach 19.8 percent of gross domestic product in 2017. This year, the projection for 2017 is down to 18.4 percent of GDP. That difference amounts to a whopping $280 billion. In other words, relative to the projections issued three years earlier, today’s forecasts suggest health savings of $3,500 per family of four by 2017.”
These are only estimates; they could be optimistic. But one thing is certain: medical spending trends are headed in the right direction. At last, we seem to be breaking the back of healthcare inflation.