Déjà vu all over again: Health-care spending back on the rise

As we approach the 10-year anniversary of the Affordable Care Act (ACA), Democratic presidential candidates are sparring over what to do in its second decade. Should we build on the ACA? Or scrap it, relying instead on private markets or “Medicare for All”? As the debate heats up, it’s worth reflecting on what the ACA has accomplished so far — and what it hasn’t.

The primary goal of the ACA was to expand health insurance coverage. In that sense, it has been wildly successful: despite recent declines in coverage, since 2010 nearly 20 million people became insured. A secondary goal was to lower spending growth. It’s right there in the name: make health care affordable.

Clearly, providing subsidized insurance to people who were previously uninsured makes health care more affordable to them. But health-care spending is crowding out other important services from public and private budgets.  

Medical bills play a role in 60 percent of personal bankruptcy filings. Recent polls put availability and affordability of healthcare at the top of potentially worrisome issues for the fifth straight year. So the key question is: How successful was the ACA in making health care more affordable to society as a whole? Did it reduce the growth of health-care spending?

There is some evidence that the ACA did, at least temporarily, reduce the growth in spending. We found a marked pause in growth rates beginning in 2010, as inflation-adjusted per capita annual health-care spending was sliced from 3.4 percent in the 9 years prior to the ACA to just 1.1 percent during 2010-2013; still positive but quite reasonable given the aging of the population.

Inflation-adjusted Medicaid spending per enrollee has been flat since 2001, and similarly flat for Medicare since 2009. Remarkably, inflation-adjusted spending per enrollee for commercial health insurance — usually the largest contributor to health-care cost growth — was flat during the pause of 2010-2013. 

Potential contributors to the decline in spending growth were cuts in Medicare reimbursements to providers, initiatives to move away from fee-for-service medicine, scaling back on inpatient stays, and higher fees for patients as employers responded to what they thought was going to be penalties on high-cost insurance plans (the so-called “Cadillac Tax”). 

Slow economic recovery from the recent recession also could have played a role, although growth in health-care spending during 2007- 2009, the depths of the recession, was still quite robust. Another possibility was the strong sense among health-care providers that this was the dawn of a new era where (in Dr. Len Nichols’ words) “’The Hills are Alive’ with the sound of care process redesigns and incentive changes designed to make better outcomes sustainable at lower total cost.”

Despite these initial promising signs, early optimism has been eroded by provider consolidation and uncertainty surrounding the ACA. Since 2014, real per capita health-care spending has reverted back up to 2.6 percent with nearly 400,000 new health care jobs added in the past year and the share of GDP devoted to health care hitting a record high of 18.1 percent. Why? One explanation could be the legislative and regulatory attack on the ACA.

The policies with the greatest potential to change the trajectory of health-care spending (e.g. the Cadillac Tax on generous employer sponsored coverage and the Independent Payment Advisory Board with the power to scale back excess spending growth) never enjoyed political popularity, and have been delayed or repealed on a bipartisan basis. A second reason could be disappointment in value-based payment contracts like Accountable Care Organizations or bundled payments, which have saved only modest amounts

How can we recover those golden years of 2010-13 when health-care spending increases were sustainable, when the share of GDP devoted to health care actually fell? During that time, the ACA laid a foundation for a shift away from uncoordinated fee-for-service payment systems, towards a potential future environment of global budgets, alternative payment models, or public pricing options. For the initial investment in the ACA to pay off, there must be continued commitment for reform to ensure that brief and temporary pause might be sustained for the next 10 years. 

One approach the ACA largely avoided was a focus on regulating prices, yet one of the most successful mechanisms for ACA saving turned out to be changes in provider reimbursements. Research focused on commercial spending growth has found it largely due to price increases, and specifically hospital price increases.

During 2007–14, hospital prices grew 42 percent for inpatient care in private insurance, while physician prices grew 18 percent. It seems unlikely that any efforts to restrain costs during the next decade will be successful without addressing either competition or prices more directly. 

The ACA laid the foundation for fundamental health-care reform and expanded coverage to many previously uninsured. Now it is time to continue reform in a way that makes health care more sustainable not just for a few brief years, but for the long-term

Carrie Colla is a health economist at The Geisel School of Medicine at Dartmouth and a public voices fellow of the OpEd Project. Jon Skinner is an economist and the James O. Freedman presidential professor in economics at Dartmouth and member of the National Academy of Medicine.


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