George W. Bush deserves more credit for the recent slowdown in U.S. health care spending than President Obama, who is much more eager to attribute the slowdown to his landmark 2010 domestic policy achievement, the Affordable Care Act. The ACA’s record on cost controls is mixed, at best, and there are much better explanations available for why health care spending has slowed—and is likely to grow faster in future years.
First, the good news: health care cost growth has slowed, and it appears to have slowed almost across the board—spending growth has moderated for private health insurance, Medicare, and Medicaid spending.
Last year, the Kaiser Family Foundation found in its 2014 Employer Health Benefits survey that premiums for family coverage at employers who offered employer-sponsored insurance (ESI) rose by 3 percent—just 1 percent faster than general inflation. (The premiums for individual coverage rose just 2 percent, statistically indistinguishable from the 2013 rates.) For an industry in which premium increases have routinely hit 5-7 percent or more (growing much faster than wages, inflation, or GDP growth), that’s great news.
Rising health care costs take an outsized bite out of the average workers take-home pay. Over the last decade, premiums for employer-provided health insurance have risen by 69 percent, helping to keep wages stagnant. KFF notes that, on average, employees pay close to 20 percent of premiums for single coverage and 30 percent for family coverage—which could amount to $5,000 or more for a family making the median U.S. income (about $50,000 in 2013). Slower health plan cost growth allows employers to shift more employee compensation into wages.
The recent slowdown in premium growth appears to be part of a longer-term trend. While ESI premium costs grew by nearly 50 percent from 1999-2003, they fell in each 5-year period thereafter: down to 26 percent in 2003-2008 and just 23 percent from 2008-12, according to the Federal Medicare Expenditure Panel Survey.
More broadly, slowdowns in health care spending as a share of GDP aren’t new—and the 1990s saw a prolonged period of flat spending as a share of the economy.
Clearly, the slowdown pre-dates Obamacare. But there are a few other reasons why the ACA doesn’t deserve credit.
A 2014 article in The Lancet notes that health spending among OECD countries has slowed overall during about the same time period as the domestic slowdown. The ACA certainly did not affect health care costs in countries outside the United States.
The impact of the ACA on spending in the United States is, to put it mildly, mixed. Some aspects of the ACA are clearly cost increasing (at least in the short-term) —like covering dependents up to age 26, lifting caps on annual and lifetime coverage, and requiring zero dollar coverage of preventive services like mammograms and annual physicals. Many of the cuts that were supposed to offset new spending—to the Medicare Advantage program, for instance—have been put off or watered down repeatedly.
To be fair, falling hospital readmission rates are likely related to the ACA’s Hospital Readmission Reduction Program and may result in cost savings down the line, though it’s too early to say whether the program is reducing costs now. Other cost savings provisions and pilot projects like the Medicare Shared Savings Programs and the Pioneer ACO program have produced very modest effects to date, and it isn’t clear how successful they will be going forward. Still other provisions, such as increasing the utilization of electronic health records, were expected to produce cost savings—and may yet—but in the interim EHRs may have increased spending.
It’s now clear that President Obama and the ACA played little to no role in the health care cost slowdown. Thanks to the work of researchers from Harvard and Dartmouth University, we now have a pretty good idea of what’s driving the slowdown in private sector spending—and why President Bush deserves a good bit of credit.
First, as the Harvard researchers astutely observe, it’s important to disaggregate health care spending by source: private insurance premiums, Medicare, and Medicaid, have distinct payment structures and political constraints.
When it comes to private health insurance, largely provided through employers, the researchers note that the biggest innovation appears to the “rapid diffusion of high-deductible health plans [HDHPs],” which has led to many more employees with HDHPs having skin in the game when it comes to health care spending. Health Savings Accounts, or HSAs, are a form of tax-free savings account linked to a high deductible health plan. HSAs were signed into law by President Bush in 2003, through the Medicare Modernization Act.
Since then, the number of HDHPs has soared. The number of employers offering HDHPs grew from just 4 percent in 2005 to 31 percent in 2011.
Data from Kaiser suggests that 20 percent of employees were enrolled in HDHPs with a savings plan option in 2014, more than double the proportion from 2009 (8 percent). 80 percent of workers whose employers offer coverage are enrolled in a plan with a general deductible—which means that employees pay out of pocket 100 percent before they can access any insurance coverage. The average deductible in 2014 was $1,217, just shy of the IRS-mandated HSA minimum of $1,250 for single coverage.
According to the Kaiser data, employers have also started to manage their networks more aggressively: 18 percent of employers offer “high performance” or tiered networks in their health plan, including more incentives for employees to utilize these networks. Nearly 60 percent of employers cover retail health clinics, allowing their employees to access high-quality, basic health care in less expensive environments. More employers are also exploring private health insurance exchanges (13 percent), and defined benefit plans (23 percent). In the Medicare space, payers are also more tightly managing networks and utilization. For instance, in Medicare Part D (another innovation from the Bush era), private plans use multi-tier formularies to encourage high generic dispensing rates and to drive patients to more cost-effective drugs.
Certainly, the health care slowdown has been a bit of good news, and for advocates of the ACA, it came at the right time. But because time travel isn’t possible (yet), and ongoing changes in the private sector unrelated to the law have had much more direct effects, the ACA at best deserves minimal credit for slower health care spending.
President George W. Bush, on the other hand, ought to take a bow.
Paul Howard is a senior fellow and director of the Center for Medical Progress at the Manhattan Institute. Follow him on Twitter here. Yevgeniy Feyman is a fellow at the Manhattan Institute’s Center for Medical Progress. Follow him on Twitter here.
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