Happy 5th Birthday, ACA

Screen Shot 2015-03-23 at 8.02.41 AMThere are dozens of ways to take stock of the Affordable Care Act as it turns 5 years old today.   According to HHS statistics:

  • 16.4 million more people with health insurance, lowering the uninsured rate by 35 percent.
  • $9 billion saved because of the law’s requirement that insurance companies spend at least 80 cents of every dollar on actual care instead of overhead, marketing, and profits
  • $15 billion less spent on prescription drugs by some 10 million Medicare beneficiaries because of expanded drug coverage under Medicare Part D
  • Significantly more labor market flexibility as consumers gained access to good coverage outside the workplace

Impressive.  But the real surprise after five years is that the ACA may actually be helping to substantially lower the trajectory of healthcare spending.   That was far from a certain outcome.  Dubbed the Patient Protection and Affordable Care Act for public relations purposes, there were, in fact, no iron clad, accountable provisions that would in the long run assure that health insurance or care overall would become “affordable.”

ACA supporters appear to have lucked out—so far.   Or maybe, just maybe, it wasn’t luck at all but a well-placed faith that the balance of regulation and marketplace competition that the law wove together was the right way to go.

To be sure, other forces such as the recession were in play—accounting for as much as half of the reduction in spending growth since 2010.  But as the ACA is once again under threat in the Supreme Court and as relentless Republican opposition continues, it’s worth paying close attention to new forecasts from the likes of the Congressional Budget Office (CBO) and the actuaries at the Centers for Medicare and Medicare Services (CMS).

The ACA is driving changes in 17 percent of the U.S. economy that, if reversed or interrupted, would have profound impact on federal, state, business, and family budgets.   A quick look at some important numbers follows:

Overall spending trend.   In 2013 overall healthcare spending increased 3.6 percent, to $2.9 trillion; it was the fifth consecutive year of growth in the range 3.6 to 4.1 percent, according to CMS economists.  The share of the economy devoted to health spending held steady at 17.4 percent for the fourth year in a row.  To boot, health spending and GDP increased at similar rates from 2010 to 2013.  That hasn’t happened in decades.

The causes of the slow down, as cited by CMS:

  • The lingering effects of the recession and a modest economic recovery;
  • Federal budget cuts (sequestration);
  • Slower growth in Medicare services; and
  • The shifting of costs to consumers with private insurance, causing them to spend less.

The rate of healthcare spending growth is projected to increase to an annual average 5.7 percent in the period 2014-2023, 1.1 percent faster than projected GDP growth.  CMS also predicts that health spending will be 19.3 percent of GDP by 2023.

The causes of the uptick:  improving economic conditions; ACA-spurred coverage expansions; and the aging of the population.

Much hand-wringing has occurred around this projected uptick after the welcome 2009-2013 respite.  Angst also surrounds the shift of costs to consumers, via higher deductibles, co-pays and co-insurance.  But I think we need to bear in mind three important points:

(1) The 10-year health cost/spending forecast is still slower than the average over last four decades.

(2) 20 to 26 million people will have gained coverage by 2023, many of them with government subsidies that make the purchase possible and many of whom will use medical services they would not have without coverage, thus staying healthier and more productive.  (Estimates of this health and productivity gain are as yet not translated into a quantifiable economic benefit.)

(3) While millions of insured middle and upper income Americans are going to pay more out of pocket for healthcare than in the past, millions of newly insured lower income people are going to pay less out of pocket.  (How that will evolve is still unclear and should be the focus on close scrutiny in the years ahead.  Is this a fair redistributive trade off?)

Federal healthcare spending – CBO has annually since 2011 lowered its estimate of the 10-year cost of the Medicaid expansion and subsidies in the exchanges, the ACA’s main expense.  Federal Medicaid costs resulting from the health care law would total $847 billion in the coming decade, down more than 20 percent from 2010 estimates (in part, of course, because many states have not expanded Medicaid as expected).

As for the subsidies, CBO released its latest projections earlier this month: $849 billion over the next decade, down from the $1.1 trillion it forecast in March 2010.  In 2015, the subsidies will average $3,960 per person, down from $5,200 forecast in 2010.

Medicare spending?  The government spent about $11,200 for every person enrolled in the program in 2014, down from around $12,000 three years ago.  CBO now forecasts that Medicare spending will fall below $11,000 by 2017, adjusted for inflation, and stay there until 2020.  (Medicare spending overall will still increase over the next decade and beyond as baby boomers flood into the program.)

A similar slow down has occurred in private sector insurance premiums.  Average annual premiums for employer-sponsored family health coverage were up just 3 percent last year, continuing a recent trend of modest increases, according to The Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2014 Employer Health Benefits Survey.

Now, get this!  These trends—in Medicare, Medicaid, and commercial insurance —are occurring, CBO and CMS think, because the price of medical products and services, as well as the volume of those services, are not going to increase as much as they previously thought over the next decade. That’s due to forces described in the next section, intimately tied to the ACA.

Payment and delivery system reform.   Talked up for more than a decade, payment and delivery system reform are at long last gaining real steam.

In February, HHS Secretary Sylvia Burwell announced that by 2018 half of Medicare fee-for-service payments would be paid under contracts with incentives to manage quality and costs, up from 20 percent in 2014 and zero prior to the ACA.

Private sectors payers are ramping up their payment and quality reform efforts, too, as documented by the group Catalyst for Payment Reform.   According to its latest report, 40 percent of commercial in-network payments are now tied to performance or designed to cut waste.

The bold HHS target could sharply accelerate the implementation of ACOs, bundled payments, and other alternatives to fee-for-service—if HHS/CMS gets its act together on these initiatives and providers stop balking.  (In 2014, for example, just 3 percent of hospitals, medical groups and other entities that were approved to participate and prepared for bundled payments—220 of roughly 6,690 organizations—went ahead with the new payments, according to a report in Modern Healthcare. And while ACOs have generated savings, these have been slight to date.)

Hospitals are under pressure in multiple ways to cut costs and improve quality, most notably in the ACA-affiliated Hospital Value-Based Purchasing and the Readmissions Reduction Programs.  And they have begun to do it.  The Cleveland Clinic says it cut expenses by roughly $500 million in 2014, by reducing unnecessary tests, supply costs, and implementing efficiencies in care and administration, according to a profile of the hospital system this month in The New York Times. 

In 2013, some 150,000 fewer people were readmitted to the hospital within 30 days of an initial hospitalization than in 2012—bringing the rate of such admissions to around 18 percent of Medicare patients.  That’s almost 2 percentage points lower than a few years ago.  (Some 2 million patients are still re-hospitalized each year, however, costing Medicare $26 billion of which an estimated $17 billion is preventable.  So, progress, yes, but slow.)

At the same time, fewer Americans are losing their lives or falling ill due to hospital-acquired conditions, like pressure ulcers, infections, falls and traumas.  These are down 17 percent since 2010. Preliminary data show that between 2010 and 2013, there was a decrease in these conditions by more than 1.3 million events. As a result, 50,000 fewer people lost their lives and $12 billion in health spending avoided.

By 2016, HHS wants 85 percent of Medicare hospital payments to be subject to the value purchasing and readmissions programs.

Physicians have gotten the message, too—on reducing unnecessary, inappropriate and wasteful care.  In droves, they are abandoning practice ownership and agreeing to affiliate with hospitals and health systems that can help them track performance and quality.

Physician organizations have joined the effort.  Since its inception in 2012, for example, the Choosing Wisely initiative, organized by the American Board of Internal Medicine Foundation, has come to encompass 70 physician specialty groups representing 500,000 doctors.  The groups have made some 150 recommendations to reduce inappropriate tests and treatments.

Changes in consumer incentives and behavior.   Consumers are finally becoming more discriminating healthcare shoppers.  They’re tracking their medical expenses more carefully. They seek to avoid unnecessary care.  They don’t want to be hospitalized if that can be helped.  They are opting for hospice care at end of life.  They want to know their treatment options.  They ask for generic drugs.  They are angry about medical billing practices.  They no longer put their doctor on a pedestal.  They are sick of system complexity.  They ask tougher questions.

The (possibly) bad news is that some of the above is happening because consumers are paying more out of pocket for care, courtesy of higher deductible, co-pays and co-insurance.  As well tracked by the Kaiser Family Foundation, a rapidly growing proportion of insurance plans now offered through employers and sold through the exchanges have deductibles of  $1,000 or more.

Conservatives applaud this, arguing that it was long past time to enhance consumer’s “skin in the game” and force them to spend healthcare dollars more wisely.   Democrats and liberals worry that the shift is hurting middle-income families, and that we have a frog in the hot water problem.  As employers and insurers turn up the heat on out-of-pocket costs, we could reach a negative tipping point of too much deferred (needed) care.

At the same time as they are increasing deductibles and co-pays, insurers are reinventing managed care in ways that could hurt consumers—namely, narrow networks, especially popular in the exchanges.  Exchange-based plans are also paying doctors and hospitals less than employer-based plans, according to a CBO analysis.  CBO’s recent caution:  “Many plans will not be able to sustain such low provider payment rates or such narrow networks over the next few years,” putting “upward pressure” on premiums in the exchanges.

On the other hand, narrower networks have the potential to enhance price and quality competition in a medical marketplace that has sorely lacked it.   Pitting health systems and medical groups against each other for low-cost, high quality care was, despite everything you’ve ever heard from Republicans in Congress, a hoped- for outcome of the ACA.

Unfortunately, insurer competition is still not as robust as hoped for.  A 2014 GAO report found that enrollment in the individual, small group and large group markets is concentrated among the three largest insurers in most states. They have some 80 percent of enrollment in 37 states.  In more than half of those states, a single insurer had more than half of the total enrollees.

Final note: if the reduction in healthcare spending growth is sustained, it will reduce annual federal budget deficits and long-term federal debt, on top of the deficit reduction the ACA was always forecast to achieve.  (Yes, in case you forgot, the ACA was always projected to reduce the deficit.) 

In that context, the latest attempt by Republicans in Congress to repeal the ACA—in the Senate budget resolution last week—includes an almost incredibly disingenuous provision to allow lawmakers to ignore the fact that the repeal would add $210 billion to the deficit over 10 years.

The ACA’s hoped-for affect on costs, competition and care delivery appear to be materializing.   It’s still too early to declare full victory on affordability in all its dimensions, however.  Healthcare in the U.S. is still too expensive.  There’s still too much wasteful spending.   Prices are excessive.  Here’s wishing the ACA lives on for another 5 years, and beyond, to help solve these problems.

 Steven Findlay is an independent journalist and editor who covers medicine and healthcare policy and technology.     

23 replies »

  1. It is amazing how different the picture is from pro- to anti-ACA websites! “… lowering the uninsured rate by 35 percent …” Elsewhere we read that more and more companies lower their weekly hours in order to wiggle out of the mandatory health plan under ACA. And 35% – I am not sure if not any direct subsidy might not have had the same effect. Now you argue that there were other benefits and cost reductions. However, to me it seems too close and too early to call. Because most likely eventually the 4-tier plan architecture (bronze to platinum) must eventually collapse due to actuarial reasons: those who expect to gain from joining, i.e. more payouts than they pay in premiums, will choose higher coverage (“platinum”), those who expect to be net payers will choose “bronze”. Obviously you cannot run a plan on net “gainers” only or you will go bankrupt. So either these plans will be merged into one or the state has to fund the shortfalls. So, imho, in the end the ACA will leave overall costs unchanged – just the amount of subsidies will increase as the amount of insured persons increases. Well, you could have done that with a lot less than 22,000 pages …

  2. “Your last post seems to be saying that getting government benefits is the same as being hooked on the drug trade.”

    That is one way of looking at what I said and is probably true understanding that many people hooked on drugs are productive. but your statement isn’t an accurate reflection of what was said. Your earlier reply made it seem that if everyone were doing something that something must be correct. That is not true though sometimes it may be correct. Outliers are frequently the ones to innovate and move things forward.

    But, we can take the drug analogy one step further. Not all people that take narcotics become addicted. Only the minority do. In the case at hand the problem is not as much with the people as it is with our politicians who advance their careers by enabling otherwise hard working citizens to become overly reliant on their government.

  3. Well, Allan, I will say that you are one determined libertarian.

    Your last post seems to be saying that getting government benefits is the same as being hooked on the drug trade.

    This feels like an ivory tower argument. The senior citizen in America or Europe who gets a social security check is technically dependent on government, but about 99% of the recipients of this welfare lead decent lives.

  4. Bob, just because other people are doing something doesn’t make them right and you wrong.

    Take the ghetto experience. A lot of people are selling and using drugs. The young kids seeing that, like you, believe that is reasonable behavior because everyone else is doing it. Do you think that behavior is correct?

  5. Let me offer a slight corrective to Matthew, who I admire greatly for his years of contributions:

    Many of the countries which have universal coverage established it after World War II. These nations were destitute, to a degree it is now hard to imagine.
    There was no one besides government to sustain their medical systems.
    This is true for Britain, Japan, France to a large degree, Germany, Italy, and Spain.

    Of the other, smaller nations which have universal coverage — Israel, Scandinavia, Canada and Denmark come to mind — these nations had strong labor movements and left wing governments.

    This does not excuse America for our failure to provide universal coverage.
    But I think it adds some perspective.

  6. As you say a deadbeat Congress and executive ruled by one party (the party you seem to prefer) passed this bill. They had the time and opportunity to write the bill any way they wanted and pass it, but in your estimation they failed. I agree with you though for different reasons. Doesn’t that tell us that you and those that agree with you are in the minority?

    I don’t understand your comment about the NCPA. Is it because the economists there look at things from an economic standpoint where tradeoffs and incentives are important?

  7. Let us not forget that the ACA (and for that matter Medicare & Medicaid) are the bastard children of the ultimate deadbeat family, the US Congress. In every other country there was sensible whole cloth universal coverage–even if it was arrived at incrementally in some like Japan.

    Blessed with the mess that is the US Senate, it’s a total miracle that we got the ACA at all and therefore we have to accept that it was a slow rollout, faced off at every turn by voracious opponents.

    Is it what I or any sensible social democrat would have wanted? Of course not. But it was what we could get, and any rational observer outside of the NCPA blogosphere would have to admit that it’s gone pretty well.

  8. Thank you Steven. You are right that so much money is controlled by the feds and that is one of the reasons we have been unable to attack the cost issue. Look at Medicare over the past half decade. Every time Medicare has attempted to lower costs it has caused a rise in expenditures. That is something that should be expected because Medicare is so complex and personal that it is like a balloon that when pressed in one area expands in another. Medicare attempted to control physician prices, but all that did was to increase expenditures as physicians attempted to regain some ground. It is worse than that because if Medicare cuts by $100 and physician overhead is 50% or greater that means that to make up the $100 Medicare has to spend at least $200.

    I am not concluding that physicians are underpaid or overpaid, but neither can Medicare make that determination in a society that is as free as ours without expecting backlash that cannot be controlled.

    What you seem to want to do is double down on failed government intervention to get to the exact same place that I wish to get to. You are depending upon the ACA which is nothing more than a group of old programs, many of which have failed before. The private sector could lead the way for the other sectors as monetary control over the private sector is not half of the spending and is merely a tax gift, not a controlling interest though the way you put it made it seem otherwise.

    We are not talking about a total lack of regulation. A free market is dependent upon a degree of regulation though the buyer and seller are free to work with one another at their pleasure. You appear to find the ACA to be a private sector entity whatever that means, for in Fascist Italy the private sector and government acted together. The real question is whether the ACA is using the very effective free ( willing buyer/willing seller though regulated) marketplace. It isn’t, by definition, because the buyer is forced to contract with government sponsored institutions and those institutions are forced to do the government’s bidding and not permitted to do what they do best, innovate.

    Not to defend Republicans, but the truth is some of them are correct. The ACA is not a free market entity and that what the discussion should be all about. Stop worrying about those that fit through the cracks because the ACA spends enough money on subsidies that the same money could be used to fill up the cracks of those in need that may not be able to enter the marketplace. We are looking for the best possible care of the best quality possible for everyone.

    I think we should stop focusing on politics and the placement of blame. That gets us nowhere on a blog of this nature. We should focus on the basics, individualistic free market thinking or collectivist group thinking. There is room for both if politics and ideology are removed from the mix, but too many without any good data insist that all the dat is in so we need not look any further. That is a recipe for disaster.

  9. Allan – thanks for your comment. Healthcare in the U.S. has long been a regulated marketplace. There is zero chance of that changing, because the federal government and state governments combined account for half of all healthcare spending (Medicare, Medicaid, VA, military, and government workers). The challenge is to balance judicious regulation — that, yes, includes regulated pricing — with initiatives that create robust competition in a still very much private-sector run and managed marketplace. The ACA is grounded in that approach. Republicans in Congress and ACA opponents consistently ignore that and mislead the public by trying to paint the ACA as creating a “government-run” system. There are and always will be legitimate debates about how to achieve the balance–such as are going on right now around repeal of SGR, adjustments to Medicare Advantage payments, and reworking the EHR/meaningful use incentive program. The ideologically and PR- led effort to repeal the ACA is not in any way constructive.

  10. Steven, I appreciate what you say, but for every positive comment you made there is an opposing comment. We don’t know what will happen and we can only guess, but based upon experience in the marketplace and the fact that the ACA did not address the root causes of excessive healthcare inflation I strongly believe the ACA will fail to perform as it was stated it would.

    I am sure you have read many economists that agree with you. I am sure Paul Krugman will echo agreement as well, but I remember one of his columns that disagreed 180% from what he wrote in his textbook. Then we have Gruber’s comments. So much for what economists might or might not say. I’ll stick with the economists that don’t lean so heavily on the discipline of healthcare economics which appears to be a field quite different than just plain old economics.

    As you say there is spin all around and opinion which is what you are presenting. You did a great job presenting the spin of the side you favor. It was quite complete. I’ll wait for a blog that deals with the spin one by one to dissect them and slice and dice these arguments.

    I will take one statement, however. “What we’re seeing now offers real hope that we can do that, principally by reducing unnecessary, poor, redundant, and self-serving (for doctors) care and getting docs and health systems to truly compete on price and quality — like in the rest of the economy.” When the government steps in to fix prices or limit them and tells individuals what they must buy that type of economics should not be confused with a marketplace that is dependent upon a willing buyer and willing seller. That means the ACA is not like the rest of the economy if you are talking about businesses that function in a relatively free market.

  11. Thanks much for the comments. Very clever, Dr. Kirschman. Indeed, this 5 year old still has some growing up to do. Allan, spin is inevitable. I admit to it, but also tried to point out instances where the ACA is not addressing problems.

    I think it’s still too early to know how many people will gain insurance via the ACA. If the law survives SCOTUS again and the 2016 elections; more states eventually embrace the Medicaid expansion; and prices in the exchanges don’t start rising steeply in the next few years…CBO’s current estimates could well be below what we end up with. Namely, we could have 35 or more million newly covered by 2022 or so.

    CBO is indeed now suggesting sustained cost containment. As are many economists. That’s the point. It was long feared we could not break the back of healthcare cost increases in excess of GDP (sometimes by 2-3 percentage points). What we’re seeing now offers real hope that we can do that, principally by reducing unnecessary, poor, redundant, and self-serving (for doctors) care and getting docs and health systems to truly compete on price and quality — like in the rest of the economy.

  12. “Ipse re loquitur.”

    From another point of view we get spin in a different direction.

    CBO Says ACA Will Insure Fewer People Than Predicted
    CBO’s latest re-estimates are of ACA’s costs, not of savings or of effectiveness in cost containment.
    CBO is only re-estimating part, not all of the ACA; nothing in the latest report suggests that its overall fiscal effects are positive.
    The primary reason the latest cost estimate is lower is that CBO is now projecting the ACA will be less effective in expanding coverage – primarily because more people would have been insured even without the ACA.


  13. Happy Birthday ACA!
    Now that you are turning 5, there are so many bigger things expected of you:

    -A working website. You need to be able to have a working front-end and back-end, because its important that by 5, both ends be working properly. So, let’s put that recent whole tax statement thing in the past and move forward with your back-end training.

    -Speak with clarity on subjects. By the age of 5, we expect you to be able to speak clearly on what you mean and want when it comes to rules, regulation, and data exchanges. It is hoped that you will work on being clear on what you really mean so we can work with you.

    -Play well with others. Your birth was very rough and took a lot of special people doing special things for you to bring you into this world. Your parents have done a lot to protect you, though they have been loath to let others help you. You need to show that you can be friendly to everyone and willing to accept some help.

    Just some suggestions.
    Please enjoy this year and get plenty of rest, as your 6th year is likely to be very exciting.

  14. If you’re reading NCPA for facts, about anything, let alone health care/health policy, you’re doing it wrong.

    NCPA is a hothouse chock-full of ideologues whose rigidity is beyond measure.

  15. Dr Palmer, Part D insurers can NOT “offer anything they want” – and premiums reflect a crazy quilt of hunches about Rx costs and insurers reckoning with how many people (and their doctors) they can annoy with extraneous/unjustified prior authorization/step-edit/other conventional loss avoidance gimmicks.

    If MAPD plans are your idea of “free markets” functioning successfully, you set a pretty low bar – in fact, it’s resting on the ground.

  16. “affordable health insurance but unaffordable health care is ACA”

    So reddy, how would you solve this?

  17. Spin occurs when an individual produces only one side of the equation. There is nothing wrong with spin and Dr. Findlay did an excellent job.

  18. It is unfortunate that those among us who are committed to opposing ObamaCare (aka the Affordable Care Act) regardless of the analysis, facts or statistics will always term the results as “spin.” Mr. Findlay’s objective analysis points out the millions (16+) more Americans insured, the slowing of the rate of increase of health insurance premiums, the important insurance reforms that are now in place and the substantially lower the trajectory of healthcare spending. All without invoking a single payer system or even a public option. Sounds to me like a grand slam.

  19. “Anyway, you did a fine job in gathering up all the good things about the PPACA.”

    Bill, maybe the word you should have used instead of ‘things’ was ‘spin’.

  20. On the ncpa health policy blog at ncpa.org a recent article discussed subsidies and premium increases for 2015.
    The average subsidy went down $1.
    The average net premium increased from $82 to a bit over $100.
    That is about a 20 percent increase in net premiums.
    I wonder if the subsidies are exacerbating the net premium increases?
    The average subsidy is over 3 times the net premium.
    Don Levit

  21. Steven, you wrote that “In droves [physicians], they are abandoning practice ownership and agreeing to affiliate with hospitals and health systems that can help them track performance and quality.”

    Come on, Steven. They are trying to get out of all this stuff.

    Anyway, you did a fine job in gathering up all the good things about the PPACA.

    IMO, the striking defect in the law is that it does not have any clever or ingenious devices for pushing down prices. E.g. we could allow exchange insurers to offer anything they want, including allowing underwriting, but subsidize according to income AND medical needs (the competition effectiveness shown in Part D should have given us a clue.)