New Report from the Council of Economic Advisers: The Recent Slowdown in Health Care Cost Growth and the Role of the Affordable Care Act

By Jason Furman
The White House, November 20, 2013

The Affordable Care Act (ACA) was passed against a backdrop of decades of rapid growth in health care spending, and one of the ACA’s key goals was to root out serious inefficiencies in the United States health care system that increase costs and compromise patients’ quality of care. Recent data show that health care spending and prices are growing at their slowest rates in decades; it appears that something has changed for the better. While this marked slowdown likely has many causes, and these causes are not yet fully understood, the available evidence suggests that the ACA is contributing to these trends, and, moreover, is helping to improve quality of care for patients. Today the White House Council of Economic Advisers released a new report analyzing recent trends in health costs, the forces driving those trends, and their likely economic benefits.

http://www.whitehouse.gov/blog/2013/11/20/new-report-from-council-econom…

Trends in Health Care Cost Growth and the Role of the Affordable Care Act

Executive Office of the President of the United States, November 2013

While final conclusions about the causes of the recent slow growth and its persistence await additional data and analysis, some conclusions are possible with the data currently available.

The Role of the 2007-2009 Recession

Some have identified the 2007-2009 recession and its aftermath as a potential driver of system- wide changes.

However, the theory that the slowdown in the growth of health care costs is simply a result of the recession is inconsistent with several pieces of evidence.

* The slowdown has persisted well beyond the end of the recession.

* The slowdown appears in Medicare, which is more insulated from the business cycle, not just the private sector.

* The slowdown appears in health care prices in addition to health spending.

Other factors driving slower growth in health spending unrelated to the ACA

* Increased cost-sharing may be reducing utilization in private plans

* Many blockbuster drugs are coming off patent

The Role of the Affordable Care Act

* Reductions in Medicare overpayments to providers and health plans

* Deployment of new payment models to increase efficiency and improve quality of care

* Penalties for hospitals with high readmission rates

* Accountable Care Organizations

The evidence is clear that recent trends in health care spending and price growth reflect, at least in part, ongoing structural changes in the health care sector. The slowdown may be raising employment today, and, if continued, will substantially raise living standards in the years ahead. The evidence also suggests that the ACA is already contributing to lower spending and price growth and that these effects will grow in the years ahead, bringing lower cost, higher quality care to Medicare and Medicaid beneficiaries and to the health system as a whole.

Full report (28 pages): http://www.whitehouse.gov/sites/default/files/docs/healthcostreport_fina…

Drew Altman, Obamacare’s ref

By Patt Morrison
Los Angeles Times, November 19, 2013

Drew Altman, President and CEO of the Henry J. Kaiser Family Foundation:

“We are in a historic slowdown in healthcare spending right now, mostly due to the weak economy but also due to changes in health delivery — more cost-sharing, higher deductibles, more out of pocket. Nobody knows when healthcare spending will shoot up again and by how much.”

http://www.latimes.com/opinion/commentary/la-oe-morrison-altman-20131119…

Our Unhealthy Tax Code

By Jason Furman
Democracy, Summer 2006

In the final diagnosis, the tax code is literally making America sick – squandering taxpayer dollars on a health care subsidy system that is failing to provide quality health care to all Americans.

A single-payer national health care system would, by definition, remedy the problem, but it is unlikely to happen any time soon, if ever at all. Beyond the political limitations, it is also an open question whether a single-payer system would be the most efficient way to provide quality health care for all Americans. In the meantime, reforming health care will come down to a set of incremental changes that build on the current system.

http://www.democracyjournal.org/1/6466.php

The White House has released a new report from the Council of Economic Advisers, chaired by Jason Furman, celebrating the fact that health care spending has finally come under control, and it is due primarily to implementation of the Affordable Care Act, or so it seems that is what they want us to believe.

Although there are multiple factors why health care spending has slowed, the two most important are those mentioned by Kaiser Foundation’s Drew Altman: the weak economy that persists since the Great Recession, and the expansion of health insurance products that place more of the burden of paying for health care on patients themselves.

Prices and volume determine the level of spending. The continuing weakness in the economy has created a reluctance to increase prices, and the cost sharing barriers such as high-deductibles have decreased the volume of services accessed. Spending slows.

Furman tends to minimize these two important factors as he touts the great benefits of the Affordable Care Act. He cites the reduction in Medicare overpayments while remaining silent on the fact that HHS used two devious schemes to offset some of those reductions (overpaying quality bonuses, and using an accounting gimmick that will provide a 3.3% increase in Medicare Advantage payments, replacing a scheduled 2.2% decrease – a 5.5% net gain). He cites new payment models such as value-based purchasing, the shared savings program, innovation experimentation, and outcomes research, all of which are largely experimental and could not have had any significant impact to this date on slowing spending. He cites the penalties for hospital readmissions, but Medicare readmissions have been reduced from 19% to 18%, a very small percentage of overall Medicare admissions and hardly an explanation for any significant reduction in the rate of spending increases (not to mention that he fudges the numbers to predict another undocumented 0.5% decrease). And, finally, he cites the great promise of spending reduction – the accountable care organizations. Though he touts their success, only 13 of the 32 Pioneer ACOs saved enough money to receive shared savings from CMS. ACOs simply do not explain the slowing of spending on health care.

We need to understand that Jason Furman is an avowed incrementalist who, in 2006, was dismissive of single payer reform. As such, he has become a great “company man” for President Obama. Rather than being dismissive of single payer, we can be dismissive of Jason Furman. If we really want spending control, we need to adopt the proven model of a single payer national health program – an Improved Medicare for All.

So should we nevertheless be celebrating the slowdown in health care spending? Let’s look at the score sheet:

Protracted weak economy – No celebration

Impaired access to care through cost barriers –  No celebration

Ineffective policies of the Affordable Care Act – No celebration

Good grief!