Thursday, December 5, 2013

Is Obamacare Responsible For the Recent Slowdown in Health Care Costs?

That is what we have been told the Obama administration will claim on Friday as they begin the job of reselling Obamacare.

Is Obamacare even partly responsible for the slowdown in health care costs?

That is silly.

First, Obamacare is not a health care reform law; it is a health insurance reform law. No one on either side of the debate has ever argued anything different.

Does the law have some limited cost containment features in it?

Yes. But these are either pilot projects or are years from being fully implemented.

I have heard the argument that the Medicare cuts that were made to help pay for the program are examples of cost containment efforts that are having a short-term impact on controlling costs. The Democrats need to be careful with this one. I recall their countering Republican "Mediscare" claims by saying the Medicare cuts were not significant.

In a letter last year accompanying the Medicare Trustee's report, the Medicare actuary said, "The [Obamacare Medicare cuts] will affect Medicare price levels more gradually, but a strong likelihood exists that, without very substantial transformational changes in health care practices, payment rates would become inadequate in the long range."

Translated: The Obama Medicare provider cuts are not having a big impact in the short-run but will be unsustainable over the longer-term.

Obamacare cuts Medicare Advantage payments. But those cuts have either so far been put off or are just beginning to bite. The first real cuts hit in 2014 and the first big cuts come in 2015.

These provider cuts in their totality are a tiny percentage of health care spending in the first few years and have had almost no impact so far. The 2% across the board sequester cuts that have already hit provider payments and Medicare Advantage plans have been far more significant.

Some have argued the new Medicare Accountable Care Organization (ACO) program, that reorganizes provider payment away from fee-for-service, is having a big impact. First, private ACOs were around long before the Obamacare architects had the idea. Second, the Medicare ACO program is only a pilot program just getting off the ground. Recent reports regarding the first 32 advanced "Pioneer" ACOs only showed very limited and mixed results for the first year.

Then there is the high cost health plan "Cadillac" tax designed to discourage overly generous employer plans. It begins in 2018. We are getting indications that many employers are beginning to pare their health plans back so as not to hit the tax threshold four years down the road––but this is something that is only just beginning to happen particularly as employers announce their plan changes for 2014.

Perhaps the biggest, and most controversial, cost containment element of the Affordable Care Act is the Independent Payment Advisory Board (IPAB), which has the power to change Medicare reimbursement if costs are escalating at an unsustainable rate. But the IPAB doesn't even begin until 2015––the board members haven't been appointed yet. More, it appears that health care cost trend is now so low the board may not even be triggered come 2015.

Why are health care costs escalating at historically low levels?

That is a question health care economists have been debating. No one is really sure. But at least three reasons are commonly listed:
  1. The economic slowdown that has persisted. Health care cost trend has long tracked the overall economy.
  2. Health insurance plans, particularly employer plans, have been going through a multi-year push to increase deductibles and co-pays as well as put consumers in a position to be more accountable for their health care spending choices. Health savings accounts have grown markedly in recent years.
  3. Managed care companies and their provider partners have made a marked improvement in changing the way care is delivered and paid for––today's health care delivery system, while still largely a fee-for-service system, is not the same one we had ten years ago.
Clearly, there is a lot of debate over just what is causing the slowdown in health care costs.

I guess that just creates an opportunity for eager politicians to find another thing to spin.