Topics: Obamacare

Why Obamacare is driving costs instead of controlling them

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Opinion,Philip Klein,Columnists,Obamacare,Health Care,Spending,Magazine

On March 5, 2009, when President Obama began his push for health care legislation at a White House forum, he faced a challenge. How could he sell an expensive new government entitlement at a time when the economy was tanking, when he had just signed a $787 billion economic stimulus package and when the Congressional Budget Office was projecting a deficit of $1.2 trillion for that year alone?

His solution: Sell the health care program as a prudent measure to control costs.

“[H]ealth care reform is no longer just a moral imperative, it's a fiscal imperative,” Obama argued that day. “If we want to create jobs and rebuild our economy and get our federal budget under control, then we have to address the crushing cost of health care this year, in this administration. Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term -- rather, it is one of the best ways -- in fact maybe the only way -- to reduce those long-term costs.”

But as it turned out, Obama's health care law was less about reducing health spending than it was about expanding insurance coverage. Though the law does include provisions to reduce the projected growth of Medicare, those savings -- along with tax increases -- are being used to help cover the more than $1.8 trillion in spending for expanding Medicaid and subsidizing the purchase of insurance over the next decade.

Taking into account expenditures by the government at all levels as well as the private sector between 2009 and 2012, overall health care spending grew less than 4 percent annually in the United States, which is relatively low by historical standards. Though Obama tried to credit the health care law for this, actuaries at the Centers of Medicare and Medicaid Services concluded that the broader economic slowdown was the more likely explanation.

A mounting body of evidence has indicated that late in 2013, spending started accelerating again, and it picked up even more steam as millions of Americans gained insurance through Obama’s health care law.

According to the latest gross domestic product estimates from the Bureau of Economic Analysis, health care spending grew at a 5.6 percent annual rate in the fourth quarter of 2013 and by a whopping 9.1 percent in the first quarter of 2014, when Americans gained access to benefits through Obamacare. That was the highest growth rate recorded since 1980.

It’s important to note that those numbers are merely preliminary estimates subject to further revision as more data become available. But it isn’t the only evidence pointing to an uptick in national health care costs.

A survey of emergency room doctors conducted in early April by the American College of Emergency Physicians (ACEP) found that 46 percent of respondents said that the volume of emergency room patients had spiked since Jan. 1, when Obamacare benefits kicked in, compared with 23 percent who said it decreased.

When Obama was selling his health care law, he argued that one of the ways it would cut costs would be to reduce emergency room visits, but Alex Rosenau, president of ACEP, took the opposite view in a statement announcing the survey results: "Emergency visits will increase in large part because more people will have health insurance and therefore will be seeking medical care.”

Prescription drugs could also put upward pressure on costs. In 2012, growth was nearly flat, CMS actuaries said, a result that “was driven largely by a slowdown in overall prices paid for retail prescription drugs as numerous brand-name blockbuster drugs (most notably Lipitor, Plavix, and Singulair) lost patent protection in late 2011 and in 2012 and as generic versions became available."

But prescription drug spending is expected to pick back up, especially as expensive new medicines are introduced. For instance, this year Gilead Sciences, Inc. introduced a drug called Sovaldi that effectively treats 90 percent of Hepatitis C cases, but costs $1,000 per pill, bringing the price of the full 12-week treatment to around $84,000.

Separately, an April report from Express Scripts, the nation's largest provider of pharmacy benefits, found that early enrollees in insurance plans through Obamacare's exchanges were using more costly prescription drugs than those insured outside of the exchanges.

In a June 2009 speech to the American Medical Association – made infamous by Obama's promise that those who liked their health care plan would be able to keep it under his program – the president said the status quo in health care spending was “unsustainable.”

“If we fail to act, one out of every five dollars we earn will be spent on health care within a decade,” he said.

But last September, CMS actuaries estimated that health spending would rise to 19.9 percent of gross domestic product by 2022 — or almost exactly one out of five dollars. The same report estimated that the law would boost national health spending by $621 billion over the next decade compared to old status quo that Obama called “unsustainable.”

It is, no doubt, far too early to claim definitively that the U.S. is at the start of another acceleration in health care costs. But if this does turn out to be the case, then it would create a huge opening for an alternative approach to reform.

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Philip Klein

Commentary Editor
The Washington Examiner