The White House Health Care Spending Report November 20, 2013 shows the last three year have see the slowest rate of medical care spending growth since 1965 - when Medicare began. - GWC
by Dylan Scott - Talking Points Memo
Jason Furman, chairman of President Obama's Council of Economic Advisors, explained why in a briefing with a small group of reporters. The case is built on three parts.
1. Evidence that some of the drop in the growth rate of health care spending is structural, as opposed to cyclical
This makes sense intuitively. The recession ended in 2009, but health care spending has continued to slow its annual growth. So the persistence of the trend is one marker.
In addition, according to the report, health care price inflation is also slowing down. (The price of individual health care goods and services is different from overall spending on health care.) The personal consumer expenditure price indices are down to a 1.8 percent annual average growth rate since Obamacare passed -- down from a 2.8 percent average annualized rate of growth from 2007 to 2010. Health care prices wouldn't be affected by the struggling economy the way outright spending (which can be held down by people seeking to spend less on health care) would be, Furman said.
The other marker is Medicare's average annual spending growth, which tends to be more isolated from the broader economy because it's government-funded, Furman said. Medicare average spending growth has been flat -- literally 0 percent -- since 2010.
"It's taken people time to realize just how structural the change has been. Two years ago, I think there was more of a controversy and debate as to whether the slowdown in health costs was just caused by the Great Recession," Furman said. "But we know that it's not all the story."
2. Obamacare has already done tangible things to slow health care cost growth.
While not as ballyhooed as the coverage expansion, Obamacare included real reforms that cut spending -- particularly in Medicare, because the government already oversees its finances. The Congressional Budget Office estimated that the federal government would save $17 billion in fiscal year 2013 through cuts to Medicare Advantage payments to private insurers and adjustment in payments to providers. Spread over the three years since the law was passed, that accounts for an average annual 0.2 percentage point reduction in health care spending growth over that time, according to the White House.
Other reforms are likely to have an effect, though unmeasured for now, on spending growth, Furman said. The federal government has started penalizing hospitals for high readmission rates. The law created groups known as accountable care organizations, comprised of health care providers who will share savings (or lose money) based on whether they deliver quality care. Down the road, the administration should be able to gauge their impact on spending.
3. Historical precedent says that changes in Medicare spending will lead to changes in private insurance spending.
This is the most nebulous variable in the equation. But Furman and the White House cited recent research on the "spillover" effect on the kind of reforms to Medicare that Obamacare initiated. According to that research, when Medicare cuts provider payments, the private insurance industry on average cuts its own payments by 77 percent of that amount. Another study found that every dollar of Medicare savings resulted in 55 cents in private insurance savings.
So, according to Furman, if you take the 0.2 percentage point reduction through the Medicare payment cuts and apply it to the private sector, you get a 0.5 percentage point reduction in overall health care price inflation that can be linked to Obamacare -- a significant contribution to the decline in price inflation cited above and therefore the total spending slowdown.
by Dylan Scott - Talking Points Memo
Jason Furman, chairman of President Obama's Council of Economic Advisors, explained why in a briefing with a small group of reporters. The case is built on three parts.
1. Evidence that some of the drop in the growth rate of health care spending is structural, as opposed to cyclical
This makes sense intuitively. The recession ended in 2009, but health care spending has continued to slow its annual growth. So the persistence of the trend is one marker.
In addition, according to the report, health care price inflation is also slowing down. (The price of individual health care goods and services is different from overall spending on health care.) The personal consumer expenditure price indices are down to a 1.8 percent annual average growth rate since Obamacare passed -- down from a 2.8 percent average annualized rate of growth from 2007 to 2010. Health care prices wouldn't be affected by the struggling economy the way outright spending (which can be held down by people seeking to spend less on health care) would be, Furman said.
The other marker is Medicare's average annual spending growth, which tends to be more isolated from the broader economy because it's government-funded, Furman said. Medicare average spending growth has been flat -- literally 0 percent -- since 2010.
"It's taken people time to realize just how structural the change has been. Two years ago, I think there was more of a controversy and debate as to whether the slowdown in health costs was just caused by the Great Recession," Furman said. "But we know that it's not all the story."
2. Obamacare has already done tangible things to slow health care cost growth.
While not as ballyhooed as the coverage expansion, Obamacare included real reforms that cut spending -- particularly in Medicare, because the government already oversees its finances. The Congressional Budget Office estimated that the federal government would save $17 billion in fiscal year 2013 through cuts to Medicare Advantage payments to private insurers and adjustment in payments to providers. Spread over the three years since the law was passed, that accounts for an average annual 0.2 percentage point reduction in health care spending growth over that time, according to the White House.
Other reforms are likely to have an effect, though unmeasured for now, on spending growth, Furman said. The federal government has started penalizing hospitals for high readmission rates. The law created groups known as accountable care organizations, comprised of health care providers who will share savings (or lose money) based on whether they deliver quality care. Down the road, the administration should be able to gauge their impact on spending.
3. Historical precedent says that changes in Medicare spending will lead to changes in private insurance spending.
This is the most nebulous variable in the equation. But Furman and the White House cited recent research on the "spillover" effect on the kind of reforms to Medicare that Obamacare initiated. According to that research, when Medicare cuts provider payments, the private insurance industry on average cuts its own payments by 77 percent of that amount. Another study found that every dollar of Medicare savings resulted in 55 cents in private insurance savings.
So, according to Furman, if you take the 0.2 percentage point reduction through the Medicare payment cuts and apply it to the private sector, you get a 0.5 percentage point reduction in overall health care price inflation that can be linked to Obamacare -- a significant contribution to the decline in price inflation cited above and therefore the total spending slowdown.
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