Open Letter to President Obama About His JAMA Paper

Dear President Obama,

If I were to tell you that alligators and southern accents are correlated and that alligators cause southern accents, what would you say? You’d say, “Yes, Kip, there is a correlation, but it’s weak. But more importantly, even if the correlation were strong, there is no plausible mechanism by which alligators could influence accents. Therefore I reject your conclusion.”

I offer the same rejoinder to your argument in your August 2 JAMA article  that the Affordable Care Act has reduced health care inflation. In that paper, you claimed the ACA has “contributed to a sustained period of slow growth in per-enrollee health care spending,” and you cited the low average inflation rate of the five-year period 2010 to 2014. But that period correlates only loosely with the period of very low inflation that began in 2008 and ended in 2014. The fit is even worse if we define the “sustained period of slow growth” as 2004 or 2005 to 2014 as some do. To give you the benefit of the doubt, I’ll assume you were referring to the 2008-2013 inflation lull.

Of far more importance, even if the correlation were strong, there is no plausible mechanism in the ACA that could have caused more than a tiny fraction of the 2008-2013 slowdown.

Your post-presidency sabbatical

The purpose of this letter is to urge you to find the time after you leave office to discover for yourself there is no cost containment in the ACA for the non-Medicare population and very little for the Medicare program, and the net effect of the ACA on national health spending is inflationary, not deflationary. If the ACA’s so-called cost-containment provisions don’t cut costs (or even raise costs when all costs are measured), but the ACA raises inflation by expanding coverage, its net effect has to be inflationary.

You of all people need to acknowledge that fact and do something about it. Your name will forever be tied with the ACA. The ACA has never been on a solid footing, and now that inflation is resuming, it should be clear even to you and other diehard ACA supporters the ACA is in trouble. If nothing changes, the ACA could become what Henry Aaron predicted in 2010 it might become – “zombie legislation, a program that lives on but works badly.”

Just because you’re leaving office doesn’t mean you must sit on the sidelines and watch the ACA take a slow nose dive. If you set aside some time after you leave office to immerse yourself in health policy, and if you give high priority to finding the truth and low priority to making the ACA look good, you will conclude as I have that the ACA has little cost containment in it. You’ll conclude, as I have, that Peter Orszag, Zeke Emanuel, Jeanne Lambrew and the other advisors who told you “accountable care organizations” and other pay-for-performance fads could cut costs were merely regurgitating groupthink developed over the last half-century by the managed care movement.

And once you have determined that ACOs and the other cost-containment nostrums in the ACA are not lowering inflation and some (notably ACOs and “medical homes”) may actually be inflationary, you can then use your influence to educate Congress and the health policy elite about why the ACA is aggravating inflation and what should be done about it.

In this letter and two comments I’ll post shortly, I will offer a quick tutorial on where you went wrong in claiming the ACA is anti-inflationary. Obviously I don’t have the space here to teach a graduate course in health policy. But I do believe that in three essays I can make you suspicious of the groupthink you were exposed to in the White House, and I believe I can whet your appetite for the antidote to groupthink – evidence-based health policy.

It’s the economy, stupid!

There is near-universal consensus that the 2008-2013 inflation lull began in 2008 because that was the first full year of the Great Recession, and the lull ended in 2014 because the recession’s worst effects were over by then and because the most inflationary provisions of the ACA – the coverage expansion provisions – kicked in that year. Other factors contributed to the lull, but the recession was far and away the most important.

The latest report on the National Health Expenditure Accounts, a document you cited four times in your paper, makes it crystal clear the inflation lull came to a halt in 2014. Here is the very first sentence in the summary of that report:

“In 2014, U.S. health care spending increased 5.3 percent following growth of 2.9 percent in 2013 to reach $3.0 trillion…. The faster growth experienced in 2014 was primarily due to the major coverage expansions under the Affordable Care Act, particularly for Medicaid and private health insurance.” [1]

How did you miss that statement? Inflation almost doubled in 2014 primarily because of the ACA. Inflation is projected to rise gradually to 6 percent by 2020

Why did you fail to tell us the “sustained period of slow growth” ended two years ago?

There is widespread agreement that the enormous loss of income and wealth caused by the 2007-2009 Great Recession is the most important reason why the inflation lull began and ended when it did. The reason for that is the existence of a well-documented correlation you neglected to mention – a consistent correlation over time, over space, and over income classes between income and health care spending. Richer nations spend more on health care than poorer nations; upper-income Americans spend more on health care than lower-income Americans; and Americans as a group spend more on health care during good times and less in bad times.

To put that last point more precisely, we spend less during periods that include recessions and recovery from recessions, and we spend more during periods following recovery from recessions. Because the Great Recession was brutal (it was the worst recession since the Great Depression), its effect on medical spending was immediate and its effect lasted beyond 2009.

Perhaps the single best paper documenting the tight link between the recession and the inflation lull is one by Dranove et al.  entitled, “Health spending slowdown is mostly due to economic factors, not structural change in the health care sector.” Your former advisor Peter Orszag cited that paper in his editorial commenting on your paper.

Alligators don’t cause accents

The correlation between recessions and health care inflation is not only consistent over many years and reasonably tight, but it has a plausible explanation. Conversely, the correlation you asked us to accept (the 2008-2013 inflation lull and the short lifespan of the ACA) is loose and, with one possible exception that I will discuss and dismiss below, has no plausible explanation.

The explanation for the correlation between recessions and health care inflation is not just plausible, it is obvious. Medical care is expensive (it accounts for a sixth of our Gross Domestic Product) and much of it can and will be put off when more basic needs like food and shelter become harder to pay for. Conversely, when most households have recovered from recessions, national spending on health care returns to levels approximating pre-recession levels. By contrast, with one remotely possible exception (the cuts to Medicare), your claim that there is something in the ACA that would explain the last four years of the inflation lull (2010-2013) defies commonsense.

I urge you to read the annual reports on national health spending during the post-2010 portion of the inflation lull by CMS’s Office of the Actuary (OACT). You’ll see that OACT gave the ACA virtually no credit for the inflation lull and instead attributed the lull to the Great Recession. For example, in a paper  on national health expenditures for 2011, OACT stated: “Although some provisions of the Patient Protection and Affordable Care Act … were in effect in 2010 and 2011, the impact on aggregate health spending growth was minimal in these years. The most prominent provisions of the act will not be implemented until 2014.”

In its report on national expenditures for 2013 ,OACT again attributed the continued low inflation to the recession. OACT mentioned the ACA only in passing, and then merely to say that the ACA contained inflationary and deflationary provisions. [2] Of the four deflationary provisions OACT mentioned, only two – the cuts in Medicare’s FFS program and in the Medicare Advantage program – constitute remotely plausible mechanisms by which the ACA could have made a dent in inflation during the 2010-2013 period. But upon examination, those cuts do not constitute a plausible mechanism because they did not take effect until 2012, and they did not become substantial until 2014. [3] To repeat, by 2014 the inflation lull was over.

To your credit, you did not attempt to argue in your JAMA paper that ACOs and other “alternative payment model” (APM) programs authorized for Medicare by the ACA should take any credit for the inflation lull. That would have been foolish for two reasons. First, like the cuts to Medicare, the APM demonstrations weren’t implemented till late in the 2008-2013 period. Second, those demos are saving little or no money and may be raising costs when all costs incurred by all payers (doctors, hospitals, foundations, and public and private insurers) are taken into account.

For the record, the Medicare inflation lull ended in 2014 as abruptly as the system-wide inflation lull ended. [4] Medicare inflation resumed in 2014 despite the big cuts inflicted on Medicare by the ACA and the 2011 sequestration legislation.

Electronic medical records: An overlooked cause of inflation

Oddly, you made no mention of electronic medical records (EMRs) as a mechanism that deserves credit for the inflation lull. You have been a huge fan of EMRs. You believed the folklore promoted by the Institute of Medicine and the computer industry that EMRs would cut medical costs by more than the EMRs cost to install and maintain. Because you believed that folklore, you enthusiastically supported legislation (the HITECH Act, the ACA, and MACRA) that put financial pressure on doctors and hospitals to buy EMRs.

The evidence indicates that the campaign to induce doctors and hospitals to buy EMRs (which began under Bush II) has raised total health care spending. A paper published in 2005 concluded that the cost of installing EMRs in all hospitals and clinics will raise national health expenditures by 2 percent. [5] Not every clinic and hospital has purchased one of the clunky EMRs available for sale these days, so we can’t say the cost of buying and maintaining EMRs has reached 2 percent of our $3 trillion health care bill yet. But we’re getting there. By 2013, according to the CDC, eight in ten clinics and six in ten hospitals had purchased an EMR. Meanwhile, the evidence indicates EMRs are not cutting costs. We may conclude, therefore, that the ACA has contributed to health care inflation by putting pressure on doctors and hospitals to buy EMRs.

Please note I do not dispute those portions of your JAMA paper which argued that the uninsured rate has fallen and that millions of Americans have access to medical care they didn’t have before. I have focused on your cost-containment claims in order to make it clear to you the ACA will never “bend the cost curve.” If it can’t reduce health care inflation, it is unlikely any Congress, even a Congress consisting of 100 percent Democrats, will ever raise taxes high enough to maintain the lower uninsured rate the ACA has achieved to date. I want you to understand the ACA is headed toward “zombie-law” status unless ACA proponents get it through your heads that the ACA’s faddish “value-based purchasing” nostrums will have little or no effect on health care inflation and might even make it worse.

Analyzing the bad advice you got

I believe you cling to the myth that the ACA deserves substantial credit for the inflation lull, and you cling to the hope that the ACA will lower health care inflation in the future, because you bought the wrong diagnosis of the US health care crisis. You bought the diagnosis peddled by the managed care movement since 1970, namely, that US health care costs are high because patients get too much medical care, and this alleged overuse problem is in turn caused by the fee-for-service method of payment. Having bought this diagnosis, you naturally bought the “solution” proposed by the managed care movement – the fee-for-service incentive must be turned upside down by exposing doctors and hospitals to insurance risk, and doctors must be micro-managed. That diagnosis is wrong, and so is the solution.

In my next two posts I will criticize both the managed care diagnosis (overuse) and the managed care solution (risk-shifting and micro-management). I will do so by focusing on three managed care proponents who influenced you deeply: Atul Gawande, Elliot Fisher and his colleagues at the Dartmouth Atlas, and Peter Orszag. If I can show you how they misled you, I believe you’ll be more open to my argument that the ACA is inflationary.

As you can tell, I really don’t like your health policy. But I want you to know I voted for you twice, and I have great respect for you. Thank you for being our president in such tumultuous times.

[1] Here are the inflation figures (increase in national health expenditures) for 2007 through 2014, beginning with 2007: 6.5 percent, 4.6, 3.9, 4.0, 3.9, 3.8, 2.9, and in 2014, 5.3. (Source: National Health Expenditure Accounts https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html )

[2] Here are the inflationary and deflationary factors OACT mentioned in its report http://content.healthaffairs.org/content/early/2014/11/25/hlthaff.2014.1107.full on 2013 spending: “A few key provisions [of the ACA] exerted downward pressure on health spending growth in 2013, including the productivity adjustments to Medicare fee-for-service payments, reduced Medicare Advantage base payment rates, increased Medicaid prescription drug rebates, and the medical loss ratio requirement for private insurers. At the same time, other provisions – such as early Medicaid expansion initiatives, a temporary increase in Medicaid primary care provider payments, reducing the size of the Medicare Part D doughnut hole, and the implementation of drug industry fees – exerted upward pressure on health spending growth.”


[3] The Congressional Budget Office projected ACA-authorized Medicare cuts would total $9 billion in 2012, $14 billion in 2013, and $40 billion in 2014 (see Table 2 of this 2011 CBO report https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/costestimate/hr22.pdf ). The $40 billion cut equaled about 1 percent of national spending in 2014, a significant amount. But by 2014, the inflationary coverage expansion provisions swamped the Medicare cuts.


[4] Medicare inflation rose from 3.0 percent in 2013 to 5.5 percent in 2014 (see Exhibit 3 in this paper http://content.healthaffairs.org/content/early/2015/11/25/hlthaff.2015.1194 behind a paywall) , and is projected to remain in the 5 to 7 percent range over the next decade (see Exhibit 2 in this paper http://content.healthaffairs.org/content/early/2016/07/12/hlthaff.2016.0459, also behind a paywall).

[5] Here is a quote from that paper: “To achieve an NHIN (national health information network) would cost $156 billion in capital investment over 5 years and $48 billion in annual operating costs. … $156 billion is equivalent to 2 percent of annual health care spending for 5 years.” (Rainu Kaushal et al., “The costs of a National Health Information Network,” Annals of Internal Medicine 2005;143:165-173, 165.)

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18 replies »

  1. Kip, Great post. The ACA has raised costs to the nation since open enrollment began. There is no debate about this. CMS economists are the ones who state this. The proposed benefits Steve is talking about are just that – proposed. It is a manic argument – apparently the health care industry delivers too much useless care in the form of unneccessary screening, surgeries, medications, etc. Why would providing subsidized care to millions result in better health care outcomes or lower cost?? Sure its a good thing people have health insurance – but is that how it was sold? We will cover more people but make the health care cost problem worse?

    I quibble with Kip regarding the reason for the slow down that has been observed. Certainly the recession plays a part, but the effect of talking about cost constantly to physicians can’t be overstated. Cardiologists order fewer stress tests, stents, medications, and adoption of the latest and greatest drugs/devices is much slower than before. This is not necessarily a bad thing, though it certainly can be.

    Kip also hits the nail on the head when it comes to the influencers. I grew up reading spitzer and gawande as a med student and resident. If I had become president after instead of going into private practice, I probably would have taken the Obama approach as well. There has been no greater teacher about healthcare policy than trying to actually deliver health care in this climate. This is how I learned first hand how meaningful use hamstrung EHRs, how hospitals waste millions of dollars adopting clunky inpatient EHRs, and essentially how removed ‘policy leaders’ were from actual clinical practice. Spitzer and Gawande had important things to say, but they were one data point, and far from the complete story.

  2. I agree with Jim P below…..this is ambitious, Kip. It’s an important topic and good dialogue to launch. Thanks.

    I concur that most analyses/studies indicate the recession was the major factor in the spending/cost slowdown from 2008 to 2013. That seems your main point. And it is widely supported by ACA proponents as well as opponents, which you don;t really acknowledge.

    Some of your other points (so far) seem based on a selective review of evidence and a clear bias against the delivery system reforms the ACA sought to build on. The ACA did not invent integrated systems, payment reforms, PCMHs, etc. It sought to leverage and promote those largely private sector initiatives. Moreover, it still seeks to test and refine them and see what works. It’s a given that not everything will; this is health care!

    As in your other very articulate and thought-provoking posts on THCB, I think you use too large a brush to tar the many efforts/experiments underway to “bend the cost curve.” You point to evidence on the negative side but many studies indicate positive in-roads and trends in both quality improvement, efficiency and lowered cost growth (if not by much yet). It goes without saying that if this were easy (without disrupting our capitalist, profit-centered health care economy completely), it would have been done years ago.

    In your future posts, bear in mind that the White House, Congressional Democrats, and all ACA proponents since 2010 have acknowledged that they put the imperative of coverage expansion first, and short-shrifted “direct-action” cost control in the ACA. (Steven Brill’s book, among others, has detail on that.) That was a political decision but also a practical one, for complex reasons many THCB readers can appreciate.

    Obama’s JAMA article acknowledges as much though not in that context. And he has acknowledged the point in public many times.

    The statement that the ACA is INCREASING costs seems driven by your bias…since it was always clear some costs in the system would increase due to greatly expanded coverage. (Impact on the federal budget is another thing…and complex…and you don’t really delve into that.) And, of course, we (the previously uninsured and society) get a public good out of the increased cost (some of which comes out of consumer’s pocket…some from government, etc). That public good has only begun to be quantified. If you want to be fair, you have to account for that. There are many studies showing the benefits to individual and public health from expanded coverage…)

    Finally…to cut this comment short….you promise to reveal how President Obama and the rest of us bought into the wrong set of arguments for significant health reform…the wrong diagnosis and treatment, if you will. I’ll look forward to those posts…and hope you factor in the overwhelming body of research (25 years in the making) indicating that 20% to 30% of the care in our system (at every level) is wasteful, inappropriate, unnecessary, and poorly delivered. And I hope you won’t bother to defend unregulated open-ended FFS; that’s a fool’s errand and you are not a fool by a long shot. There’s too much evidence that FFS promotes wasteful care and even profitteering, as recognized in every other developed nation on earth…and by almost all health economists, on the right and left, Democrat and Republican. I’ll grant you though, there’s much nuance and complexity in killing open-ended FFS and replacing it with so-called value-driven payment, which we are painfully inventing as we go along.

    Sorry for long comment, but this is a critical debate as we get ready for ACA fixes and MACRA implementation under a new administration.

    • Steven
      You stated: “You point to evidence on the negative side but many studies indicate positive in-roads and trends in both quality improvement, efficiency and lowered cost growth”

      You have said this in the past, and several months ago you were gracious enough to say you would provide the references to the studies that show positive inroads. But as far as I know these remain unrevealed. I suspect the reason is embarrassment that there is little there that is worthwhile that show positive results….but maybe I am wrong?

      I suspect there are good studies that show a few organizations like Kaiser that are organized differently show good results…but efforts to expand the model to broader patient populations???? I kind of doubt there is much to show in the way of positive results.

    • “FFS promotes wasteful care and even profitteering”

      Maybe a bit more care than needed, but HMO’s promote profiteering and denial of necessary care which leads to illness and death. I don’t find death as an alternative appealing. Years ago the motto stupidly written into the handbook of one HMO was “denial of care means profit”.

      • Allan and Steve,
        Note the large well designed Rand 2011 study that I often cite contradicts the anti fee for service meme……and actually DISPROVES the belief of many of our policy pundits that you can’t get significant cost reduction without killing fee for service.

        For those who haven’t followed this, the Rand study shows that High Deductible Plans linked to Health Savings Accounts lead to significant reductions in health expenditures without evidence of harm…..and this result is within the “fee for service” model.

      • First of all, most primary care docs can’t clean up on fee-for-service. We get nothing back from ordering tests or procedures. The only way we can rack up is seeing more patients, don’t have time now to see the ones that need it! And CMS controls the codes by how we get paid.
        Specialists do procedures because that’s what they do, that’s what they are paid to do.
        And yes Allan, people will die, but that’s the point isn’t it? Talk about conflict of interest. Not only that, practices are going to steer away from those that really need care:

        This fee-for-service argument is so lame it’s pathetic.

  3. One thing for sure: if the cost-sharing increases much more and the actuarial value continues to decrease, the demand for insurance (of the type that is affected by these) will fall. And, at some point, demand may collapse.

    Of course supply snd demand would then kick in and the insurer might then charge less. And total health care costs and hc inflation might then fall.

    This must be true as these cost sharing increases are making the insurance product less and less insurance and more and more self-pay-as-you-go. If a consumer is paying out of pocket for nearly half of his care–as is true with a 60% actuarial value bronze plan– he is going to say to himself “I am nearly becoming half of my own insurer. I might as well pay out of pocket if cost sharing goes any higher.”

  4. Excellent, but I disagree on a point (“Other factors contributed to the lull, but the recession was far and away the most important”) and my disagreement is based on an excellent analysis….and a large nationwide study….conducted by Rand and funded by Robert Wood Johnson and others.

    “In the most comprehensive study to date on this topic, researchers looked at claims and enrollment data for more than 800,000 households insured through 59 large employers across the U.S. in a study funded by the California HealthCare Foundation and the Robert Wood Johnson Foundation. The analysis shows clear cost reductions,”…..and since then the market share of employer offered High Deductible plans linked the HSA has grown.

    Note: these are NOT the Frankenstein versions in the ACA!

    I came across this because of a WSJ article (several years ago) about troubles at GE’s imaging unit….GE business unit executives attributed their downturn to employees choosing high deductible plans linked to HSAs……and the article pointed out the irony that GE employees where largely choosing such plans themselves….and patients were choosing to pass on expensive MRI’s and shopping for lower cost MRI’s when they decided they needed it.

    A further quote from Rand:
    ” Increasing CDHP enrollment to 50% of those with employer-sponsored health insurance would result in an annual savings of $57 billion in health care costs, equivalent to a 4 percent decline in total health care spending for the nonelderly. These savings could be larger or smaller depending on the extent of enrollment in high-deductible, account-based plans: an increase to 75% would save more than $85 billion (a 5-9% decline in total spending).”

    Finally, thank you for pointing out the impact of EHR on health care costs…..how could so many billions spent with so much disruption/harm and few benefits do anything except worsen health inflation…..but almost no one mentions such an obvious thing!

  5. Great post Kip! I look forward to reading the next ones. You are right on about the useless EMR’s we have right now and their affect on expenditures. Singing my song.

  6. As a physician member of the AMA, I read the President’s essay when that week’s edition arrived. Its thematic character seemed odd. The essay just isn’t like anything written by a former editor of a Law Review periodical. [ Correct me, if I have that observation in error.] To make the errors in analysis you describe just doesn’t seem like something a President would promote. In any case, his essay, published in one of the two most read medical journals, was almost an apology to the backwoods of healthcare for the mess he had created. Putting aside the attendant effort to find a path toward universal health insurance, the ultimate effect was to spend a very large sum of money, arguably without any net effect on the health of our nation. And, at the same time, our nation’s federal deficit spending was being left completely unchecked by the political paralysis on Capitol Hill.

  7. Hi Kip: Very ambitious. You have my attention. I fundamentally agree with you regarding ACA and the “lull.” Where I tend to part ways is on the EMRs. I’m sure their implementation increased healthcare inflation and we know it was a clumsy implementation with many EMRs that didn’t do the job. Yet, I cannot stand for a future without interoperable, intuitive, usable EMRs. Their need is so obvious. The patient-touching technology in healthcare (as opposed to treatment technology like the magic machines) is hideously archaic. I mean, faxes? Medical records written in hand are rife with error and at times cannot be read; we lose stuff with paper; and it’s hard to share. I’m sure you know all that, so I’m looking forward to your next posts to see what you say.

    • Are you saying we are better off now with today’s EHR’s? You say medical records written by hand are rife with errors, don’t you think the same occurs with EHR’s, even more-so? Aren’t EHR’s making it more difficult for many physicians to access and enter the needed information?

      You say you ” cannot stand for a future without interoperable, intuitive, usable EMRs”. Fine, but for your want of the future, we don’t have to destroy the present.

  8. Love your stuff Kip! The Hits keep on coming! Can’t wait for the next parts. Hope they include the onerous irrelevant burdens of EHR and the nonsense of the policy market made by Certified EHR.
    Making us click, count, attest, numerator, denominator, audit, etc every encounter with supposed quality measures all the while being tested on how we use the EHR, along with clinical practice improvement modules, and resource use somehow attributed to me, throw that in a bag and tell me I am a quality doc or I should be penalized is a joke.
    Second, the Certification of EHRs has to stop. We need disruption in that market.
    We need innovation in EHR, not more government made rules. We don’t need a nanny to tell us what to purchase, and the current certification certainly does not improve usability, safety, security, efficiency, burden.

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