David Cutler vs. Medicare actuaries: Who is right about Obamacare's impact on health spending?

Article Highlights

  • David Cutler has fed his readers just enough information to commit the most elementary logical fallacy, post hoc, ergo propter hoc.

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  • Health spending has slowed down, but Medicare actuaries are telling us it would have slowed down even if Obamacare had never been enacted

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  • Health spending in recent years largely slowed down due to the abysmal economy and anemic recovery

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David Cutler is a brilliant health economist: one of the nation’s very best. As his online bio observes, he “has developed an impressive record of achievement in both academia and the public sector” having served on both the Council of Economic Advisers and National Economic Council during the Clinton administration as well as advising three different presidential campaigns. He was an excellent choice to serve as senior health care adviser for the Obama presidential campaign in 2008. Indeed, David Cutler should be given great credit for presciently warning the administration three years ago that because strong leadership was missing, the law’s successful implementation was in jeopardy (unfortunately for all of us, that warning was ignored by the White House).

This superlative record of achievement makes it doubly tragic that David Cutler now is deploying his talents to perpetuate one of the president’s greatest falsehoods regarding Obamacare: the claim that it would save the average family $2,500 a year in premiums. Here’s what Cutler had to say in TheWashington Post on Friday:

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.

Have Events Proven Candidate Obama Was Right?

I have earlier demonstrated that the most absurd version of this Obama promise – $2,500 in annual premium savings before the end of his first term — missed by a mile.[1]  Average premiums for family coverage have increased $2,976 by the end of his first term. Thus, we can accurately say that both in direction and magnitude reality turned out to be worse than the opposite of what the president pledged 5 years ago.

But Prof. Cutler is not trying to defend this ludicrous promise. Instead, he is arguing in favor of a much more modest claim — that Obamacare would reduce total health spending per family by as much as $2,500 below trend.[2] And his analysis sounds pretty convincing until you learn what he hasn’t told you. The very same official forecast that he cites showed that had ACA not been enacted, health spending in 2016 would be $80 billion lower than is now expected under Obamacare (compare Table 2 with Table 2a). Either the Medicare actuaries are correct (Obamacare will increase spending by $80 billion in 2016 relative to what would have happened without the law) or David Cutler is right that thanks to Obamacare, medical spending in 2016 is $2,500 per family of four lower than it would be otherwise. Both cannot be right. My bet is on the Medicare actuaries.

 

The Logical Fallacy David Cutler Wants You to Believe

This contradiction between what the Medicare actuaries are saying and what David Cutler is saying is incontrovertible: if Obamacare truly is responsible for the recent slowdown in health spending, then the Medicare actuaries’ recent forecast of spending is dead wrong. David Cutler knows this. He’s far too smart to believe otherwise. Yet I have seen nothing on the public record indicating that he believes the CMS forecast is in error. And his op-ed gives no indication of challenging their assessment. But he wants you to believe something that isn’t true, so he has fed his readers just enough information to commit the most elementary logical fallacy, post hoc, ergo propter hoc:

  • Health spending has slowed down (true!)
  • Obamacare is being implemented (true—albeit ham-handedly)
  • Therefore, Obamacare is (largely) responsible for the slowdown in spending (false!)

It would appear Prof. Cutler is counting on the ignorance of his readers not to see his statistical sleight-of-hand. Yes, health spending has slowed down, but what the Medicare actuaries are telling us is that it would have slowed down anyway even if Obamacare had never been enacted. From where I sit, David Cutler’s op-ed does not inform the public: it misleads the public. This is lamentable since it is exactly this sort of deception that has led us to where we are today.

Why Did Health Spending Slow Down Recently?

Health spending in recent years largely slowed down due to the abysmal economy and anemic recovery. Indeed, there’s pretty good evidence that the slowdown in health spending began before the recession began in 2007!  So Prof. Cutler’s claim that “It is increasingly clear that the cost curve is bending, and the ACA is a significant part of the reason” (emphasis added) is a little hard to swallow.

More importantly, his claim is belied by the very same CMS report he cites: as one can plainly see in my figures calculated directly from that report, the ACA is bending the cost curve up, not down, over the next decade.  Moreover, the Office of the Actuary wrote a separate report in which it carefully analyzed why its projection of health spending in 2013 was so much lower than its parallel forecast in April 2010 (i.e., immediately after the law was enacted). It accounted for 5 separate factors that might explain why its 2013 projection of health spending for the year 2019 was $574 billion lower than its 2010 forecast of spending for the same year:

  • Impact of historical spending levels through 2011 (-$125 billion)
  • Impact of macroeconomic assumptions, i.e., the economy (-$35 billion)
  • Impact of growth in Medicaid, Medicare, & other government payers and programs, unrelated to the ACA (-$291 billion)
  • Other Factors, unrelated to the ACA–a residual that would include model changes, non-measured health sector changes, etc. (-$150 billion)
  • Impact of the ACA (+$27 billion)

So according to the Medicare actuaries, not only is the ACA not a significant part of the reason health spending is slowing down in recent years, factoring in the ACA has resulted in even higher spending than was expected when the law was scored 3+ years ago. It seems implausible that someone as well informed as David Cutler is not familiar with this report.


Truth-Twisting with Selective Bookkeeping

To be sure, Prof. Cutler trots out several concrete instances in which he claims ACA has saved money. My point is not to challenge these relatively small bore empirical claims (e.g., $9 billion in savings due to reductions in hospital-based infections). I don’t really need to do that because Prof. Cutler is telling far less than half the story. He’s focused on where Obamacare perhaps is saving a modest amount of money while leaving unmentioned the hundreds of billions of dollars in new spending that result from expanding Medicaid and subsidizing private coverage on the exchanges.  Any impartial observer should be able to see that it is misleading to tally only the purported savings attributable to the law while ignoring the much larger increases in health spending triggered by the same law. In truth, all the vaunted savings being generated by Obamacare are being swamped by the ways in which the law has or will increase health spending over the next decade. What is so hard about conceding this very simple and obvious point?

False Promises and the Fate of Obamacare

Those who have been paying attention realize that nearly every single promise made by the president about his health care law has been shattered. We now know Obamacare will not come anywhere close to universal coverage, it will increase the deficit, not reduce it, and that middle class taxpayers will end up bearing a healthy share of the new taxes required to pay for it.  And while he continues to dissemble about the actual number of Americans who will not be able to keep their plans, even President Obama has finally admitted that his guarantee about keeping your plan if you like it was not technically accurate (and offered his version of an apology for this).

In light of the latest report from the Medicare actuaries, there should be little doubt that for the forseeable future, Obamacare has been the cost curve up rather than down. When I pointed out this inconvenient truth a few weeks ago, most progressives responded with arguments that boiled down to: “Of course: it costs money to cover tens of millions of formerly uninsured individuals.” Once everyone agrees on this very simple point, we can then have a productive debate about whether the fully loaded costs of Obamacare—inclusive of sizable side-effects such as more than 1 million lost jobs10 million full-time workers converted to part-time status, and 3.8 million who will lose their existing coverage and become newly uninsured—is worth these gains in coverage. In contrast, it does not contribute to an informed public debate for David Cutler to continue promoting the “free lunch” version of Obamacare (we can cover 31 million uninsured yet still spend less money!).

Pundits from across the ideological spectrum have recognized that the
president has created a yawning credibility gap for himself with his promises about Obamacare. But he alone is not to blame for this sad state of affairs. To a considerable extend, he was enabled by uncritical (biasedif you will) self-proclaimed fact-checkers, partisan cheerleading on the op-ed pages of major newspapers such as the New York Times, and his closest advisers. Even though they long ago left Mr. Obama’s payroll, former advisors such as David Cutler, Zeke Emanuel, and David Axelrod—despite all being in academia (where pursuit of truth purportedly is the mission)—continue to flak for the president rather than call him to account for the pyramid of untruths he has uttered about this terribly misguided law. How disappointing. If you were a professor and student David Cutler had handed in a paper identical to the one appearing in the Washington Post, what grade would you give it? A student of David’s caliber should be giving us A+ work; anything less is a waste of his prodigious talent.

Note: I am grateful to fellow Forbes blogger Grace-Marie Turner for some very helpful suggestions in writing this piece. I am solely responsible for any errors or omissions that may remain.

Footnotes

[1]  David Cutler provides only the original instance of candidate Obama’s promise (made on June 17, 2007): to “cut the cost of health care by up to $2,500 per family.” But this promise eventually morphed into a far more implausible version: by January 3, 2008 it had morphed into “And if you already have health care, then we’re gonna reduce costs an average of $2,500 per family on premiums” and by February 19, 2008 became “if you already have health insurance, we will lower your premiums by $2,500 per family per year.” Indeed, this version appeared in at least 2 campaign commercials that year:

  • OBAMA: “And we’ll cut the costs of a typical family’s health care by up to $2,500 per year.”
  • NARRATOR: Barack Obama will provide rural America with affordable health care, and save the typical American family $2,500 a year.

By June 5, 2008, this promise was made particularly concrete: “In an Obama administration, we’ll lower premiums by up to $2,500 for a typical family per year….. We’ll do it by the end of my first term as President of the United States.”  

All told, the public record has a single instance in which candidate Obama promises to cut the cost of health care by up to $2500 per family (the version offered to us by Prof. Cutler). Yet there’s at least 14 different instances—including two campaign commercials—in which candidate Obama promisedpremium savings of $2,500 per family per year.  Prof. Cutler is on record as having conceded that candidate Obama had made “occasional misstatements” that tied the $2,500 reduction to premiums and not total medical spending, so I don’t fault him for citing these exaggerated promises in his op-ed.

[2]  A $2,500 cut in relative health spending per family is considerably smaller than a $2,500 annual cut in absolute terms. This is especially true given that average premiums for family coverage were $13,375 in 2009 and had grown 8.7% during the preceding decade (Exhibit 1.11). Thus, leaving aside the economic downturn, one might well have “expected” such premiums to increase by $8,700 by 2016 just based on historical growth patterns. This would mean that constraining premium growth to “only” $6,200—i.e., a 47% increase over 2009—would have counted as fulfilling candidate Obama’s promise. However, this is obviously a far cry from literally trimming $2,500 from the $13,375 baseline figure from the year the president took office.

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Christopher J.
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