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Medical spending keeps rising, outpacing both general inflation and population growth.
When the authors of the Affordable Care Act promised to “bend the cost curve” in health care, it was typical Washington doublespeak. Voters likely heard those words as a promise that costs would go down, but the intended meaning was merely that they would rise more slowly than before.
Yet even by that meager standard, ObamaCare is a failure. Costs are rising faster than before, and there’s no real prospect of a reversal. The key provisions of the law that were supposed to produce savings and efficiencies either haven’t worked or will never be implemented.
America’s health-care spending rose 4.3% in 2016, according to federal data released earlier this month. That is the third straight year it outpaced economic growth. Total health spending last year was 17.9% of gross domestic product, up from 17.2% in 2013.
Some defenders of the ACA claim the nation’s health-care spending has slowed since 2010. They compare the nominal growth rate before and after ObamaCare became law. Health spending grew at an average of 5.7% a year from 2003-10 and then slowed to 4.3% from 2010-16.
But this comparison of unadjusted nominal figures is misleading for two reasons. First, inflation has been low the past several years in the wake of the Great Recession. After adjusting for inflation, national health spending grew on average 2.6% a year from 2003-10, compared with 2.7% from 2010-16. Second, the population is growing less rapidly than in the past. A fair comparison would use per capita figures. Real national health spending per person rose on average 1.7% a year from 2003-10, compared with 1.9% from 2010-16.
What explains the law’s poor performance? To start, its signature cost-control provisions simply have not panned out. Accountable Care Organizations were supposed to give hospitals and doctors incentives to become more efficient and cut Medicare costs, but they have yet to produce any overall savings. In 2016 only 56% of the 432 ACOs hit their benchmarks for reducing costs. Even worse, after taking into account their bonus payments, ACOs actually increased Medicare spending, by $216 million in 2015 and $39 million in 2016.
ObamaCare also included a provision to penalize hospitals that have high rates of readmission within 30 days. This was supposed to cut costs, and hospitals have reduced readmissions. But new data shows that mortality rates have also increased, suggesting the policy may contribute each year to 5,400 premature deaths of Medicare patients with serious heart conditions. This is another instance of the unintended consequences when government meddles in the practice of medicine. Moreover, there is no evidence that the policy has reduced overall costs, because hospitals can provide other services to make up for lower readmissions.
Medicare spending per capita, adjusted for inflation, has slowed slightly, falling an average of 0.3% a year from 2010-16. One factor here is ObamaCare’s cuts in payment rates to health-care providers. Medicare now pays hospitals about 60% of what private insurers pay. But this hasn’t produced an overall slowdown in health costs, because payment cuts do not automatically translate into a more efficient system or higher-quality care. Some cuts merely shift the burden of who is paying the bill.
ObamaCare’s most promising cost-control provision is the one that both Republicans and Democrats are determined to jettison. To help pay for the cost of the law’s expensive subsidies, the Democrats writing the bill reluctantly agreed to impose a 40% excise tax on “Cadillac” insurance plans offered by employers—specifically, on any premiums that exceed $27,500 a year for family coverage. The idea was to give employers an incentive to cut costs.
But the Cadillac tax is poorly designed, because it would hit low-salaried workers as hard as CEOs. It wasn’t scheduled to kick in until 2018—four years after the rest of ObamaCare—because of union opposition and Democratic ambivalence. Then a 2015 law delayed it until 2020. Both parties would like to kill the tax before it goes into effect.
The result of all this is the opposite of what Mr. Obama promised. He sold the health-care bill by saying it would expand insurance enrollment and bring relief from rising costs. But as the official data show, national spending per capita on health care not only hasn’t slowed, it has grown somewhat faster during the past six years than before ObamaCare was passed. The cost curve has been bent a bit, but in the wrong direction.
Mr. Antos is a scholar in retirement and health policy at the American Enterprise Institute. Mr. Capretta is a resident fellow at AEI.
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