ACA Impact on Costs

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Impact Analysis >> ACA Impact on Costs (last updated 2.6.17)

Impact on National Health Expenditures

Impact on Private Health Insurance Premiums

Impact on Medicare Expenditures

Government Agency Estimates

Medicare Trustees Reports. The Boards of Trustees for Medicare (also Boards) report annually to the Congress on the financial operations and actuarial status of the program, including 75-year projections of expenditures. Beginning in 2002, there is one combined report discussing both the Hospital Insurance program (Medicare Part A) and the Supplementary Medical Insurance program (Medicare Part B and Prescription Drug Coverage). The Office of the Actuary in the Centers for Medicare & Medicaid Services (CMS) prepares the report under the direction of the Boards. 2013 Medicare Trustees Report [PDF, 2MB]

CMS, Office of the Actuary. OACT provides the analysis that underlies the Trustees reports, but also does other related analyses.

  • IPAB Determination. Section 1899A of the Social Security Act requires the Chief Actuary of the Centers for Medicare & Medicaid Services (CMS) to determine by April 30, 2013, and annually thereafter, whether the projected 5-year average growth in per capita Medicare program spending exceeds a specified target. See downloads below for the annual determinations to the Independent Payment Advisory Board (IPAB). May 31, 2013 (based on 2013 Medicare Trustees report)

Technical Panel. The annual reports of the Medicare Boards of Trustees to Congress represent the Federal government’s official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, and other factors affecting program expenditures. In addition, the methods used to estimate future costs, based on these assumptions, are complex. These assumptions and methods are subject to periodic review by independent experts to ensure their validity and reasonableness.

Congressional Budget Office. CBO analyzed the slow spending growth in Medicare—which is more insulated from the economic cycle–and was unable to identify an empirical explanation for 75 percent of the slowdown. Of the 3.2% decline in annual spending growth per beneficiary (slide 8):

  • Changes in age and health status of beneficiaries account for only 0.3 percentage points;
  • Growth in % of enrollees enrolled solely in Part A accounts for only 0.2 percentage points;
  • Growth in average payment rate accounts for only 0.2 percentage points.
  • Growth in use of prescription drugs accounts for only 0.1 percentage points.
  • Economic slowdown accounts for 0%.

Other Estimates

  • Committee for a Responsible Federal Budget. Using the most recent available data from CBO, CRFB reports on FY2014 spending through May 2014, “Adjusted for timing shifts, Medicare growth is even lower through eight months at just 0.3 percent. And even after removing the effects of temporary policies, year-to-date Medicare growth remains extremely low at 2.5 percent… This is more than a full percentage point below economic 1 and beneficiary growth 2, meaning that even excluding one-time effects, Medicare spending is on pace to both fall as a percent of GDP and on a per-capita basis.”
  • Kliff, SarahThe amazing, mysterious decline in Medicare’s price tag. (7.9.14). Chart documents that Medicare will spend $50 billion less in 2014 than was projected by CBO 4 years ago. Per beneficiary outlays are expected to be $1,048 (8.5%) lower in 2014 than the CBO had projected in its 2010 baseline. Factors that help explain the decline include a reduction in hospital readmissions, changes in the way doctors are paid and budget sequestration cuts to Medicare. As for the impact of the ACA, the author finds:
    • Lower Hospital Readmissions. “The health care law included lots of changes to the way that doctors get paid within the Medicare program, all aimed at getting doctors to provide better care at lower costs. That’s true, for example, with readmissions: Obamacare now penalizes hospitals when their patient shows up for a second visit that didn’t need to happen, if everything had gone right the first time.” Kliff documents the decline in Medicare hospital re-admissions over the past 4 years.
    • Lower Medicare Payment Rates. The White House estimates that reductions in payments to private insurers that provide coverage through Medicare Advantage and adjustments in annual updates to Medicare provider payment rates reduced account for a 0.2 percentage point reduction in the growth of national health expenditures over 2010-2013 period.
    • Not All Medicare Spending Reductions Are Due to ACA. However, many of the other ACA reforms designed to reduce Medicare costs did not get implemented until 2012 so they cannot explain slower Medicare spending prior to that year (the spending slowdown in Medicare began noticeably in 2007). “There are dozens of changes like this that could be playing a role in explaining why Medicare may cost significantly less than initially expected. This theory, as Neuman and Cubanksi [Kaiser Family Foundation’s Tricia Neuman and Juliette Cubanski] acknowledge, is still somewhat speculative. Some of these programs didn’t start until 2012, which makes it difficult to attribute the revised estimates in 2010 and 2011 to health reform.” In addition, at least part of the reductions are related to budget sequestration rather than the ACA.
  • Dobson DaVanzo & Associates, LLC. Do Structural Changes Drive the Recent Health Care Spending Slowdown? New Evidence: Updated Implications for Medicare Policy and Deficit Reduction, 2.28.14. “Additional supporting evidence of a continuing, historic slowdown in the growth rate of health care spending has been released since our preliminary report, published June 2013… While the cause of the declining growth in health care spending is not conclusive, new research suggests that the economy may have an even smaller impact on health care spending than previously thought as recently as one year ago…Instead, transformations in the health care market suggest that structural changes in health care delivery are taking effect and may continue to have a major impact on reducing future health care spending.”

Impact on Medicaid Expenditures

Government Agency Estimates

Other Estimates

Cost of Medicaid Expansion

Impact on Cost of Care

  • Large Healthcare Cost Increases Are Built Into Obamacare Implementation. “The ACA is projected to insure millions of additional persons, and insurance coverage has historically correlated very strongly with healthcare utilization. So, it is logical to conclude that increased utilization will contribute to rising healthcare spending, perhaps causing an inflationary bubble and ultimately, as in the past, be the harbinger of still another call for healthcare cost containment. So, we propose four steps that will reduce healthcare costs without causing an adverse impact on the access to care promised by the ACA. Step 1: Eliminate the site of service differential. Step 2: Eliminate all government regulations that do not have a positive benefit to cost ratio. Step 3: Ask physicians to use only technologies with proven efficacy for patients. Step 4: Initiate programs that help patients make healthy lifestyle choices by supporting individual responsibility.” (The Physicians Foundation,, 5.28.14)
  • Hidden Costs For ‘Fully Covered’ Care Can Slam Patients’ Wallets. “Hidden costs have popped up on ‘fully covered’ services ranging from contraception to cancer screening to annual checkups.” (Kaiser Health News, 10.19.14)
  • Big Changes in Fine Print of Some 2015 Exchange Plans: Tucked Within the Plans’ Jargon are Changes that Could Markedly Affect How Much Consumers Pay. “Much attention has focused on changes to plans’ monthly premiums, but changes to other kinds of benefits — affecting the cost of things like doctors’ visits and prescriptions — can be trickier to understand and make a huge difference in annual health care costs. A ProPublica analysis of the 2014 and 2015 plans in 34 states being offered on the exchange shows the adjustments taking place. ProPublica has created a tool that allows users to see, quickly and easily, some significant ways the plans have changed from one year to the next.” Changes include deductibles, out-of-pocket limits, and services applied to deductibles. (New York Times, 12.4.14)
  • Dropping Coverage, Increasing Costs of Popular Drugs. “Express Scripts, which handles prescription-drug benefits for millions or people nationwide, is dropping coverage for 66 brand-name drugs next month in an effort to keep costs down. Rival CVS Health is dropping 95 drugs from its own list of covered drugs. Happy holidays.” (Los Angeles Times, 12.4.14)
  • Health Law’s Strains Show: As Third Enrollment Season Kicks Off, Insurers Move to Curb Costs, Boost Premiums. “Health insurers lost a total of $2.5 billion, or on average $163 per consumer enrolled, in the individual market in 2014, McKinsey found. A number are also expecting to lose money on their marketplace business for 2015… [R]ate increases create a risk that consumers may get sticker shock despite the availability of federal subsidies that reduce the cost sharply for many.” (Wall Street Journal, 11.1.15)

Reference Pricing

  • Administration Allows New Cost-Cutting Measure for Insurers. “The new strategy works like this: Your health insurance plan slaps a dollar limit on what it will pay for certain procedures, for example, hospital charges associated with knee and hip replacement operations. That’s called the reference price. Say the limit is $30,000. The plan offers you a choice of hospitals within its provider network. If you pick one that charges $40,000, you would owe $10,000 to the hospital plus your regular cost-sharing for the $30,000 that your plan covers. The extra $10,000 is treated like an out-of-network expense, and it doesn’t count toward your plan’s annual limit on out-of-pocket costs.” (Associated Press, 5.16.14)
  • Association of Reference Payment for Colonoscopy With Consumer Choices, Insurer Spending, and Procedural Complications. “After adjustment for other relevant factors, reference payment was responsible for a 21.0% (95% CI, −26.0% to −15.6%, P < .001) reduction in the price. Reference payment was associated with a small but statistically insignificant decline in procedural complications, from 2.1% in 2009 to 2.0% in 2013 (P = .47). In the first 2 years after implementation, CalPERS saved $7.0 million (28%) on spending for the procedure. Implementation of reference payment for colonoscopy was associated with reduced spending and no change in complications.” (JAMA, 9.8.15)

ACA and Household Budgets

Impact on Affordability


  • Nowak, Sarah, Eibner, Christine, Adamson, David, Saltzman, Evan. Will the Affordable Care Act Make Healthcare More Affordable? 2013 RAND Corporation. For most lower-income people who obtain coverage as a result of the Affordable Care Act, health care spending will fall. But spending by some newly insured higher-income people will increase because they will be now paying insurance premiums.
  • Nowak, Sarah A., Christine Eibner, David M. Adamson and Evan Saltzman. Effects of the Affordable Care Act on Consumer Health Care Spending and Risk of Catastrophic Health Costs. Santa Monica, CA: RAND Corporation, 2013.
  • Burden of Health-Care Costs Moves to the Middle Class. David Cutler, a Harvard health-care economist, said this may be ‘a story of three Americas.’ One group, the rich, can afford health care easily. The poor can access public assistance. But for lower middle- to middle-income Americans, ‘the income struggles and the health-care struggles together are a really potent issue,’ he said. A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%, a rise of more than three percentage points from 1984 to 2014. By 2014, middle-income households’ health-care spending was 25% higher than what they were spending before the recession that began in 2007, even as spending fell for other ‘basic needs’ such as food, housing, clothing and transportation, according to an analysis for The Wall Street Journal by Brookings senior fellow Diane Schanzenbach. These households cut back sharply on more discretionary categories like dining out and clothing.” (Wall Street Journal, 8.25.16)

Affordability Firewall

According to the RAND Corporation, “to limit disruption to those with coverage, the ACA implements the employer mandate, which requires firms with more than 50 employees to offer health insurance or face penalties, and the individual “affordability firewall,” which limits subsidies to individuals lacking access to alternative sources of coverage that are “affordable”–do not exceed 9.5% of family income. Under the affordability firewall, all members of a family are ineligible for subsidies if at least one worker in the family has an ESI offer in which the employee’s contribution for a single premium is less than 9.5 percent of the worker’s household income. However, the employee contribution for a family ESI plan may be substantially higher than the single contribution. In contrast, families who are eligible for premium subsidies on the Marketplaces pay no more than 9.5% of their income for a family premium, and many will pay considerably less, depending on their family’s income. As a consequence of the ACA’s affordability firewall, many households facing onerous employee contributions to ESI family premiums do not qualify for subsidies for purchasing coverage in the Marketplaces.”

  • Sarah A. Nowak, Evan Saltzman, Amado Cordova. Alternatives to the ACA’s Affordability Firewall. Santa Monica, CA: RAND Corporation, RR-1296-RC, 2015. This report examines the policy impacts of the affordability firewall and investigates two potential modifications. Option 1, which is the “entire family” scenario, involves allowing an exception to the firewall for anyone in a family where the family ESI premium contribution exceeds 9.5 percent of the worker’s household income. In Option 2, the “dependents only” scenario, only dependents (and not the worker) become eligible for Marketplace subsidies when the ESI premium contribution exceeds 9.5 percent of the worker’s household income.

Rising Cost Sharing

Employer-Based Coverage

  • Deductibles Have Grown Much Faster than Wages or InflationAccording to KFF/HRET Employer Health Benefits Survey data, between 2010 and 2015, average deductibles for single coverage in employer health plans rose 67% (even as premiums for single coverage rose 24%); during the same period wages rose only 10% and general inflation rose 9%.
  • Deductible Growth Lower Than Previous Trend. But a Council of Economic Advisors (CEA) analysis (10.6.15) of the same KFF/HRET data shows that since 2010, the average deductible for single coverage has risen lessen slowly than if the trend from 2006-2010 had continued through 2014. The same conclusion can be drawn using data from the Medical Expenditure Panel Survey and trend data from 2002-2010 (the chart does not include 2015 data: Figure 4).
  • Out-of-Pocket Share of Employer Health Plan Spending Has Generally Declined. CEA also has used MEPS data for individuals enrolled in employer-sponsored coverage for the full year to determine that the out of pocket spending share of total spending in employer-sponsored health insurance has generally declined since 1997 (although a slight uptick was observed in 2013, the last year of data included in Figure 5).
  • Cadillac Tax Will Fuel Spurt in Deductibles Before 2018. Kaiser Family Foundation president Drew Altman predicts “If the “Cadillac tax” on more generous health coverage plans goes into effect as scheduled in 2018, it would lead to a spurt in deductibles as employers raise deductibles to try to keep premiums down and avoid the tax.”

ACA Exchange Coverage

Items are in reverse chronological order.

  • Many Say High Deductibles Make Their Health Law Insurance All but Useless. In many states, more than half the plans offered for sale through, the federal online marketplace, have a deductible of $3,000 or more, a New York Times review has found. In Miami, the median deductible, according to, is $5,000. (Half of the plans are above the median, and half below it.) In Jackson, Miss., the comparable figure is $5,500. In Chicago, the median deductible is $3,400. In Phoenix, it is $4,000; in Houston and Des Moines, $3,000. But the deductibles are so high they may be scaring away some consumers (the story offers a number of real-life anecdotes to buttress this assertion) (New York Times, 11.14.15)
  • This Could be Obamacare’s Greatest Achievement Yet — but is it Sustainable? “The average silver-tier plan across the nation will set a consumer back about $3,700 a year without subsidies in 2015. With subsidies (based on 2014 pricing across the nation), the average annual cost of premiums is closer to $1,000. All these premiums do is make you a member of a health insurance network. If you actually need medical care, your co-pays and deductibles are an entirely different story. For those middle-class individuals who just miss out on a subsidy, or for lower-income individuals just above 138% of the FPL, they simply may not be able to afford the deductibles associated with getting medical care, even if they’re partially subsidized.” (Motley Fool, 8.23.15)
  • ObamaCare Is Getting Less Affordable By The Minute. “So much for the ‘affordable’ part of the Affordable Care Act. Looks like ObamaCare premiums will rocket next year while sky-high deductibles make it too costly for many to see the doctor. Last Monday, IBD’s Jed Graham broke the news that big insurers in six states ‘are seeking to raise rates an average 18.6% next year.’ BlueCross BlueShield of Tennessee — which currently accounts for 70% of the ObamaCare enrollees in that state — is looking to increase premiums a whopping 36.3%. CareFirst — which has 80% of the ObamaCare enrollees in Maryland — is pushing for a 30% increase. Oregon’s Moda Health wants a 25.6% increase, on average, for the roughly half of ObamaCare enrollees it covers in the state. The Wall Street Journal followed up on Graham’s reporting later in the week, noting that New Mexico’s market leader, Health Care Service, wants an average 51.6% boost in premiums…Things aren’t looking much better for ObamaCare enrollees at the other end of the spectrum, where even high-cost plans can come with substantial deductibles.” (Investors, 5.22.15)
  • Obamacare Advocates Seek to Fix Problem They Made Worse. “‘Democrats call it ‘underinsurance.’… About a quarter of all non-elderly Americans with private insurance coverage do not have sufficient liquid assets to pay even a mid-range deductible, which at today’s rates would be $1,200 for single coverage and $2,400 for family coverage,’ the Wall Street Journal reported in March… Obamacare provisions raised the insurers’ costs, and since then some additional cost-increasing Obamacare provisions have become law. Sure enough, deductibles began to increase significantly. The pro-Obamacare group Commonwealth Fund measured adults for whom the insurance deductible represents five percent or more of annual income. In 2003 and 2005, Commonwealth Fund found, three percent of adults were in that category. In 2010, the figure doubled, to six percent. In 2012, it rose to eight percent. In 2014, it rose to 11 percent.” (Washington Examiner, 5.22.15)
  • The Problem of Underinsurance and How Rising Deductibles Will Make It Worse: Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014. “Half (51%) of underinsured adults reported problems with medical bills or debt and more than two of five (44%) reported not getting needed care because of cost. Among adults who were paying off medical bills, half of underinsured adults and 41 percent of privately insured adults with high deductibles had debt loads of $4,000 or more. (Commonwealth Foundation, May, 2015)
  • Even Insured Consumers Get Hit With Unexpectedly Large Medical Bills. “The federal health law largely sidesteps the issue as well. It says insurers must include coverage for emergency care and not charge policyholders higher copayments for ER services at non-network hospitals, because patients can’t always choose where they go. While the insurer will pay a portion of the bill, in such cases, doctors or hospitals may still bill patients for the difference between that payment and their own charges. That means that in spite of having insurance, a consumer involved in a car wreck and taken to a non-network hospital might receive additional bills, not just from the hospital, but from the radiologist who read his X-rays, the surgeon who repaired his broken leg and the laboratory that processed his blood tests.” (Kaiser Health News, 2.18.15)
  • You’ll Pay a Lot More to See the Doctor with Obamacare. “Obamacare enrollees have to shell out a lot more to see the doctor or get medications than their peers with job-based health insurance. Deductibles, co-payments, and drug payments are higher under the average Obamacare silver-level plans — the most popular — than employer policies, according to a CNNMoney comparison of reports by Kaiser Family Foundation and Health Research & Education Trust. The reports looked at policies offered on the exchanges for 2015 and those enrolled in employer plans in 2014.” (CNN Money, 2.12.15)

High-need Patients

  • New Commonwealth Fund Report Profiles The 12 Million Sickest Patients; Finds Health Care System Not Meeting Their Needs. According to the new research, the sickest adults struggle to get the health care they need but still spend more out-of-pocket and have higher medical costs than other adults:
    • Twenty percent of the sickest adults reported going without or delaying needed medical care or prescription medication in the past year, compared to 8 percent of all U.S. adults.
    • Out-of-pocket expenses for adults with high needs were more than twice those of the average adult ($1,669 vs. $702). At the same time, the annual median household income for high-need adults was less than half that for the overall adult population.
    • Average annual per-person spending on health care was $21,021 for the sickest adults—nearly three times the average for adults with multiple chronic diseases but no functional limitations ($7,526), and more than four times that for the average U.S. adult ($4,845).

    ‘We are asking the sickest people to pay the most, when they have the lowest incomes,’ said Gerard Anderson, a professor at Johns Hopkins Bloomberg School of Public Health and a coauthor of the studies.” (Commonwealth Fund, 8.29.16)

Evidence from the States

  • Health-care Providers Tell R.I. Legislative Commission Patients Unable to Pay Bills, Avoiding Uncovered Expenses. “Insurance plans with soaring deductibles are leaving more and more patients unable to pay their medical bills. Or, worse, they simply aren’t seeking recommended care to avoid incurring uncovered expenses. That was the consensus of a group of health-care providers who attended a legislative hearing at the State House on Wednesday on the increasing prevalence and size of out-of-pocket expenses patients face. ‘What this is doing to patients can’t be understated,’ said Stephen DeToy, director of government and public affairs for the Rhode Island Medical Society.” (Providence Journal, 11.19.14)

Financial Security

Several studies have found that low-income Americans have become less vulnerable to health-related financial shocks. Studies have found that:

  1. 9%
  2. 8%

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