ACA Impact on National Health Expenditures

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Impact Analysis >> ACA Impact on Costs  >> ACA Impact on National Health Expenditures (last updated 3.1.17)

Projections of ACA Impact on Health Spending

Federal Government Estimates

CMS, Office of the Actuary

CMS releases annual estimates out to 10 years through NHE spreadsheets showing detailed service and payment source breakdowns. There is a lag-time issue: 2014-2024 projections were released on 7.30.15. However, the summary highlights and Health Affairs analysis released by CMS analysts provides some insights into major factors expected to contribute to future cost trends. That said, the 2013 reports listed below are the last ones to separately report health spending under two different scenarios–with and without the ACA–allowing users to easily see in fine-grained detailed how much health spending was expected to change due to the ACA.

Bureau of Labor Statistics

Employment Projections: 2014-24 Summary. Healthcare occupations and industries are expected to have the fastest employment growth and to add the most jobs between 2014 and 2024. Healthcare support occupations and healthcare practitioners and technical occupations are projected to be the two fastest growing occupational groups during the 2014 to 2024 projections decade. These groups are projected contribute the most new jobs, with a combined increase of 2.3  million in employment, representing about 1 in 4 new jobs (Table 4). 9 of the 15 fastest-growing occupations are in health care (Table 5).

Congressional Budget Office

Items are in reverse chronological order.

  • Congressional Budget Office.  The Budget and Economic Outlook: 2017 to 2027 (January, 2017).
    • Exchange Subsidies. CBO and JCT estimate that, in calendar year 2017, 9 million people per month, on average, will receive subsidies for nongroup coverage purchased through the health insurance marketplaces established under the ACA. That number is projected to be 11 million in 2027 under current law.  The agencies also estimate net federal subsidies for coverage obtained through the marketplaces to be $49 billion, or 0.3 percent of GDP, in fiscal year 2017. Those subsidy amounts are projected to rise at an average annual rate of about 9 percent, reaching $110 billion (or 0.4 percent of GDP) in 2027. For the 2018– 2027 period, the net subsidy is projected to total $919 billion under current law.
    • Medicaid. Spending for Medicaid is expected to increase by $20 billion (or 5.5 percent) in 2017. The projected rate of growth in outlays is about the same as last year’s and is well below the average annual rate of growth recorded over the two years before that, primarily because the optional expansion of coverage authorized by the ACA will have been in place for three years and because the rapid growth in enrollment that occurred during the initial stage of the expansion has moderated. CBO projects that, under current law, total enrollment in the program will increase by about 1 percent in 2017, a slightly faster rate of increase than in 2016. Projected outlays for Medicaid, as a percentage of GDP, edge up over the period, from 2.0 percent in 2017 to 2.3 percent in 2027. CBO and JCT currently estimate that federal spending for people made eligible for Medicaid by the ACA will be $70 billion, or 0.4 percent of gross domestic product (GDP), in fiscal year 2017. Such spending is projected to rise at an average annual rate of about 7 percent, reaching $142 billion (or 0.5 percent of GDP) in 2027. For the 2018–2027 period, such spending is projected to total $998 billion if current laws remained in place. 
  • CBO: Cost of ObamaCare Subsidies Climbs by 11 Percent (3.24.16). “Federal health insurance subsidies are expected to cost the federal government about $660 billion in 2016, which includes an 11 percent increase in the cost of ObamaCare subsidies, according to the Congressional Budget Office (CBO). Much of the $136 billion in extra health spending stems from ‘significantly higher’ enrollment in Medicaid, the federal health program for low-income people, according to the CBO’s latest annual report on healthcare spending. The cost is also going up by about $28 billion because of Congress’s recent legislation that postponed what’s called the ‘Cadillac tax,’ on high-cost insurance plans. That bill also made the tax deductible to employers, further decreasing the amount of money the Affordable Care Act pulls in… Overall, the cost of healthcare subsidies is expected to grow about 5.4 percent annually as more people enroll in Medicaid. Over 10 years, the total cost of health subsidies is expected to rise to $1.1 trillion.”
  • Congressional Budget Office. The Budget and Economic Outlook: 2016 to 2026 (January, 2016). Outlays for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children’s Health Insurance Program, plus subsidies for health insurance purchased through exchanges and related spending, are expected to be $104 billion (or 11 percent) higher this year than they were in 2015.
    • Exchange Subsidies. Subsidies for health insurance purchased through the exchanges that were established under the ACA, as well as related spending, increased by $23 billion in 2015, to a total of $38 billion. They are expected to increase by $18 billion in 2016, reaching a total of $56 billion. Exchange subsidies make up the largest portion of that spending: Outlays are projected to total $39 billion in 2016 (up from $27 billion in 2015) and to reach $93 billion by 2026.
    • Medicaid. Medicaid spending, which grew by $48 billion (or 16 percent) last year—after increasing by $36 billion (or 14 percent) in 2014—represented the largest increase among major health programs. The average monthly enrollment of newly eligible Medicaid beneficiaries was 55 percent higher in 2015 than in the previous year—a total of 9.6 million compared with 6.1 million in 2014. Federal outlays for Medicaid totaled $350 billion in 2015, 16 percent more than spending for the program in 2014. About two-thirds of that increase resulted from enrollment of people who were newly eligible because of the ACA and from the greater share of costs paid by the federal government for those new enrollees.
      Medicaid spending is expected to increase by $31 billion (or 8.8 percent) in 2016. By 2026, federal outlays for Medicaid are projected to total $642 billion, or about 2.3 percent of GDP (up from 2.1 percent of GDP in 2016).

Private Estimates 

Items are in reverse chronological order.

  • Obamacare Premium Subsidies: Here’s Where They Go. Data from the Kaiser Family Foundation (12.5.16) breaks down tax credits by state, and finds that Florida and California alone account for nearly a third of spending, with premium tax credits in those states totaling $5.2 billion and $4.6 billion, respectively. Residents of six states — Florida, California, Texas, North Carolina, Georgia and Virginia — received more than a billion dollars each in subsidies.” (Fiscal Times, 12.5.16)
  • The Past and Future of the Affordable Care Act. It seems unlikely that, at least for the period 2010-2014, the ACA can claim much credit for the slowdown in the increase in spending growth. The slowing of health care spending began in 2006, before both the ACA was passed and the onset of the 2008 recession… According to data from the Altarum Institute, between March 2014 and March 2016, inflation-adjusted health care spending increased by 8.1%, nearly double the 4.1% growth in gross domestic product.10 Because of this rapid growth rate in health care spending, Altarum estimates that the share of gross domestic product devoted to health care has also increased, from 17.3% in March 2014 to a record 18.1% in March 2016.10 Little of this increase during the past several years has been because of health care prices, which have increased at about the same rate as prices overall,11 but rather, the increase in health care spending reflects greater use of health care services. This pressure on health care cost increases is not likely to moderate… These cost increases and double-digit health insurance premium increases are likely to put pressures on the ACA.” Skinner, J, and Chandra, A. (JAMA, 7.11.16)
  • Robert Wood Johnson Foundation (June 2016). The Widespread Slowdown in Health Spending Growth Implications for Future Spending Projections and the Cost of the Affordable Care Act.  “On the whole, cumulative 2014 to 2019 national health spending in the 2015 forecast is $49 billion higher than in the 2014 forecast. The 2015 forecasts for Medicare, private health insurance, out-of–pocket spending, and other health spending are also slightly higher for the 2014 to 2019 period than in the 2014 forecast… Despite the modest increase in projected national health spending since the 2014 forecast, however, the 2015 forecast still reflects a decline of $2.6 trillion from 2014 to 2019 compared with the 2010 ACA baseline forecast.
    • Medicare: CMS currently assumes spending growth would increase to an average annual rate of 6.3 percent from 2014 to 2019 compared with 4.4 percent from 2010 to 2014. This faster growth from 2014 to 2019 is driven by spending per enrollee, which is expected to grow at an average annual rate of 3.1 percent for 2014 to 2019 compared with 1.3 percent for 2010 to 2014 while projected enrollment growth remains stable.
    • Medicaid: Projected Medicaid spending for 2014 to 2019 fell by $1,050 billion in the 2015 forecast. This was partly because of the Supreme Court decision in 2012 that made the ACA Medicaid expansion optional for states and significantly reduced enrollment projections… Projected average annual growth in spending per enrollee for 2014 to 2019 also fell between the ACA baseline forecast and the 2015 forecast, from 6.8 percent to 3.3 percent.
    • Out-of-Pocket Spending: In the 2010 ACA baseline forecast, the CMS actuaries predicted a significant reduction in out-of-pocket expenditures caused by the ACA coverage expansions… By 2015, projected out-of-pocket spending for 2014 to 2019 was just $2 billion more than in the 2010 ACA baseline forecast.
    • Private Health Insurance: Private spending projections for 2014 to 2019 were lower in the 2015 forecast by $664 billion than in the ACA baseline forecast. Much of this decline was driven by slower spending growth between 2010 and 2014 than had been expected in 2010. Contributors to slower growth likely included the sluggish economic recovery as well as lower-than-expected prescription drug spending because of patent expirations and increases in generic drug prescribing. Another likely contributor was a substantial shift toward higher deductibles and cost sharing in private plans… The average annual growth rate for 2014 to 2019 is currently projected to be 5.4 percent, which is somewhat faster than estimated growth from 2010 to 2014 of 4.3 percent.
    • Other Health Spending: Projected spending in the other category fell by $456 billion for 2014 to 2019 compared with the ACA baseline forecast. Most of the reduction was driven by declines in investment spending, perhaps related to the slow economic recovery and anticipation of less demand for new construction and medical devices because of payment constraints in the ACA.
  • Herring, Bradley and Erin Trish (12.9.15). Explaining the Growth in US Health Care Spending Using State-Level Variation in Income, Insurance, and Provider Market Dynamics. “[W]hen applying our regression model’s estimates for the relationship between Medicaid coverage and health care spending to the CBO’s projections of changes in Medicaid coverage resulting from the ACA’s insurance expansions, we find that the level of total health care spending in 2019 is likely to be about 1% higher than it would have been in the absence of these expansions.” [This figure is consistent with CMS September 2013 finding shown above that ACA would increase personal health spending by 0.9% in 2019]
  • Center for Health and Economy (7.14.14)Health and Economy Baseline Estimates. “Over the next decade, H&E estimates that non-elderly Medicaid enrollment and the Health Insurance Marketplace will cost $3.8 trillion. The cost is partially off-set by $322 billion in increased revenue through the tax on high-cost employer sponsored insurance, the individual shared responsibility tax, and the employer shared responsibility tax.”
  • Battacharya, J. (October 2013). Employers and the Economics of Health Care Reform. ƒ”In 2014, 37 million employees would benefit financially from their employers dropping their plans.ƒ If all these employees were to shift to the exchange, it would cost the federal government an unanticipated $80+ billion per year in exchange and cost-sharing subsidies.”
  • Gruber, J. (June, 2011). The Impacts of the Affordable Care Act: How Reasonable Are the Projections? “The real question is how far the ACA will go in slowing cost growth. Here, there is great uncertainty—mostly because there is such uncertainty in general about how to control cost growth in health care. There is no shortage of good ideas for ways of doing so, ranging from reducing consumer demand for health care services, to reducing payments to health care providers, to reorganizing the payment for and delivery of care, to promoting cost-effectiveness standards in care delivery, to reducing pressure from the threat of medical malpractice claims. There is, however, a shortage of evidence regarding which approaches will actually work—and therefore no consensus on which path is best to follow. In the face of such uncertainty, the ACA pursued the path of considering a range of different approaches to controlling health care costs, from those that work on the demand side (the Cadillac tax), to those that work on the supply side (innovative provider payment models), and to those that promote the type of evidence-based medicine that is key to ensuring cost effectiveness. Whether these policies by themselves can fully solve the long run health care cost problem in the United States is doubtful. They may, however, provide a first step towards controlling costs—and understanding what does and does not work to do so more broadly.”
  • Gruber, J. et al. (January 2011). Policy Analysts’ Letter to House Budget Committee. (1.26.11) “[T]he Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending…Taken together, these provisions are likely to reduce employer spending on health insurance. Estimates suggest spending reductions ranging from tens of billions of dollars to hundreds of billions of dollars…The budgetary impact of repeal also would be severe. The Congressional Budget Office concludes that repealing the Affordable Care Act would increase the cumulative federal deficit by $230 billion over the next decade, and would further increase the deficit in later years. Other studies suggest that the budgetary impact of repeal is even greater. State and local governments would face even more serious fiscal challenges if the Affordable Care Act were repealed, as they would lose substantial resources provided under the new law while facing the burdens of caring for 32 million more uninsured people. Repeal, in short, would thus make a difficult budget situation even worse.”
  • Towers Watson. Warshawsky, Mark (October 2010). Bending the Cost Curve: Will Health Care Reform Rein in Health Care Spending? October, 2010. “Opinions differ as to the net effect on the rate of health care spending, in both the near and the long term. This article reviews the range of opinion and estimates by government and academic experts. We evaluate and weigh this information and then consider the economic and political consequences of the likely outcomes.”
  • Engelberg Center for Health Care Reform (August 2009). Bending the Curve: Effective Steps to Address Long-Term Health Care Spending Growth, Brookings Institution, August 2009. Written before enactment of ACA, this report argues that health reform with many of the provisions that became part of ACA would “bend the cost curve” of health spending.

Actual Health Expenditure Trends

National Health Expenditures

Bureau of Economic Analysis

BEA reports quarterly on the change in real personal consumption expenditures for health care. The report released October 29, 2015 shows health spending increasing year-over-year by 4.0% in Q3 2015. On an annual basis, the health care PCE grew 2.7% in 2014 (compared to 2013). To control for general economic trends and price inflation, it is more meaningful to compare the health care PCE with the total PCE. In 2014, the difference was 0.0%; for the years 2011-2013, the difference averaged 0.1%. For the years 2008-2010, the difference averaged 3.1%.

CMS, Office of the Actuary

CMS calculates total health spending annually with detailed breakdowns by service and source of payment. Annual estimates from 1960-2013 are available in downloadable spreadsheets. However, they are reported with a one-year lag time, e.g., 2013 data were reported in December 2014. Nevertheless, the summary highlights and companion Health Affairs analysis prepared by CMS analysts provides some insights into major factors contributing to historical cost trends.

Analysis

  • Sperry, Paul (2.18.16). ObamaCare is Creating an Illusion Economy. “GDP is up, unemployment is down — good times are here again! Sure, if you don’t ask too many questions. While the economy grew 2.6 percent in the fourth quarter, what most reports don’t mention is that 20 percent of that growth was health care spending. And the majority of that spending was taxpayer-funded subsidies from ObamaCare…President Obama in his State of the Union speech touted the revised 5 percent rate as the ‘fastest economic growth in over a decade.’ But health care accounted for a whopping two-thirds of the uptick in consumer spending and much of the overall economic improvement. ‘Health care spending might be higher’ in coming revisions, says Commerce Department economist Nicole Mayerhauser, as additional data more accurately reflect health outlays spurred by new ObamaCare enrollments and subsidies.”

Health Spending by Service

Overall Health Services

  • Altarum Institute. The October 2015 analysis of U.S. Census Bureau’s Quarterly Services Survey (QSS) shows that year-over-year growth in health services revenue was 3.3% in 2014Q1, rising steadily to 6.1% by 2015Q1, and then declining to 5.6% in 2015Q2 and 5.3% for the first two months of Q3. Health services include ambulatory health services, hospital services and nursing home services (which together account for more than 70% of national health spending). Note that the Census reports provide information on each component, but do not provide a roll-up for the health services category as a whole, hence the Altarum Institute figures are the easiest way to obtain these, along with expert interpretation of trends.

Ambulatory Health Services

  • Bureau of the Census. Census reports quarterly on spending for ambulatory health services. The latest report (9.9.15) shows that in the second quarter of 2015, revenues for ambulatory health services rose 6.0% (year over year). Each quarterly report shows aggregate spending and spending growth for a detailed list of separate ambulatory health services including 1) offices of physicians; 2) offices of dentists; 3) offices of other health practitioners; 4) outpatient care centers; 5) medical and diagnostic laboratories; 6) home health care services; 7) other ambulatory health services.
    • Council of Economic Advisers. This report provides a chart showing 4Q over 4Q trends in the growth of aggregate revenues (spending) for ambulatory services from 2008-2015. There was a sharp uptick in the rate of spending growth in mid-2013, although based on other evidence, the Council of Economic Advisers attributes this to a temporary surge in spending due to expanded coverage as opposed to higher spending per individual or family.
  • CMS, Office of the Actuary. 
    • 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Physician and clinical services grew by 6.3 percent. This was an increase from the growth of 4.8 percent in 2014 and the first growth rate above 6.0 percent in ten years.
    • Historical Data. Annual estimates from 1960-2103 are available through NHE spreadsheets for a number of ambulatory services including 1) physician and clinical services; 2) other professional services; 3) dental services; 4) home health care.
    • Projections. CMS also provides annual estimates from 2014-2024 through NHE spreadsheets for the identical list of ambulatory services.
  • 2013 Physician VisitsAccording to VOX, “doctor visits, increased by 2.7 percent in 2013 after four straight years of decline, according to a report from data firm IMS Health. Their report shows a rise in the use of nearly all medical services last year, after growth had flatlined for a few years.”

Mental Health Services

  • Mental Disorders Top The List Of The Most Costly Conditions In The United States: $201 Billion. “Estimates of annual health spending for a comprehensive set of medical conditions are presented for the entire US population and with totals benchmarked to the National Health Expenditure Accounts. In 2013 mental disorders topped the list of most costly conditions, with spending at $201 billion.” (HealthAffairs, June, 2016)
  • Are Rising Mental Health Claims a Sign of Things to Come? (pdf) “In a review of claims data for almost 100 Mercer employer clients, representing approximately 2.5 million members, we found that the Mental Health and Substance Abuse per member per year cost trend (for allowed charges) rose nearly 11%, in stark contrast to overall medical PMPY trend of 3.5%. And while MH/SA claims represent a small percentage of the overall medical claim costs (4%), a spike in the cost may be a symptom of a larger issue. More people – 3.4% increase in the MH/SA unique claimants. More claims per person – 7.5% increase in MH/SA claims per claimant. One factor behind the increase in OON utilization may be adult dependents added under the ACA, who tend to live outside the primary member’s area and use OON services at a higher rate. But the biggest driver of increased OON utilization may simply be limited access. Mental Health Parity has increased both visibility and pressure to increase access. We are seeing members access care more than ever before. And more employers are recognizing the importance of behavioral health in the benefit offering; they are increasing the number of EAP visits allowed and adding onsite counselors. Some specialty areas in particular experience access issues, such as psychiatry – both adult and child/adolescent. Fewer claimants are using out of network (OON) MH/SA providers but the total OON visits are increasing by 7.5% — and the average allowable amount per visit is twice as high for OON providers ($2,097) than for in-network ($1,019)… The shortage of providers has led a growing number to choose not to join networks — because they don’t have to. With access to in-network providers limited not just in rural markets but also in busy urban areas, more plan members may be making a choice to use out-of- network providers, albeit at a lower benefit level.” (Mercer Signal, 11.17.15)
  • Costs for Young Adults Higher than Estimated. “High mental health costs for young adults threaten to undermine a key assumption of the Affordable Care Act: that insuring more young people will lower costs because they are healthier and require less expensive care. An analysis of insurance records of 6.8 million people 18 to 35 years old … showed that 18% had been diagnosed with a mental health condition, such as depression or an eating disorder. …Treating a young person for depression costs about $7,000…about the same as the cost for treating an older person for high blood pressure. But doctors diagnose twice as many people with depression as for high blood pressure.” (USAToday, 11.6.13)

Hospital Services

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Growth in expenditures for hospital care increased from 4.6 percent in 2014 to 5.6 percent in 2015, reaching $1.0 trillion.
  • Bureau of the Census. Census reports quarterly on spending for hospital services and nursing home services. The latest report (9.9.15) shows that in the second quarter of 2015, revenues for hospital services rose 7.3% (year over year). Each quarterly report shows aggregate spending and spending growth for a detailed list of separate hospital services including 1) general medical and surgical hospitals; 2) psychiatric and substance abuse hospitals; 3) specialty hospitals (excluding psychiatric and substance abuse).
  • Council of Economic Advisers. This report provides a chart showing 4Q over 4Q trends in the growth of aggregate spending on hospital services from 2008-2015. There was a sharp uptick in the rate of spending growth in mid-2013, although based on other evidence, the Council of Economic Advisers attributes this to a temporary surge in spending due to expanded coverage as opposed to higher spending per individual or family.
  • Centers for Medicare and Medicaid Services. Annual estimates from 1960-2103 are available through NHE spreadsheets for hospital care.

Nursing and Residential Care Services

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Medicare spending for nursing home care  increased 5.6 percent in 2015 (compared to growth of 2.5 percent in 2014) and home health care increased 2.6 percent in 2015 after growth of 1.7 percent in 2014.
  • Bureau of the Census. Census reports quarterly on spending for nursing and residential care services. The latest report (9.9.15) shows that in the second quarter of 2015, revenues for nursing home services rose 4.0% (year over year).
  • Centers for Medicare and Medicaid Services. Annual estimates from 1960-2103 are available through NHE spreadsheets for the category “nursing care facilities and continuing care retirement communities.” There also is a category “other health, residential, and personal care” that includes facilities for the intellectually disabled, but this is mixed with many other services that are ambulatory health services such as services in non-traditional settings (e.g. community centers, senior citizens centers, schools, and military field stations).

Pharmaceuticals

  • Obamacare Plans’ Drug Spending Rose Faster than Other Plans in 2016. “Express Scripts, the largest manager of prescription drug plans for U.S. employers, on Tuesday said year-over-year spending per person for individual insurance plans sold on the Obamacare exchanges where it manages the pharmacy benefit rose 14 percent in 2016, driven by higher drug prices and utilization. Express Scripts said per-capita spending for other commercial plans it manages, mostly for employers, rose just 3.8 percent last year, despite an 11 percent increase in list prices for brand-name drugs. Drug spending for plans the company manages under Medicare, the federal government health plan for seniors and disabled, increased 4.1 percent last year while the rise for Medicaid, the government plan for the poor, was 5.5 percent. Prescription medications for chronic, costly conditions drove drug benefit usage with high-cost specialty medications – including drugs for HIV and inflammatory conditions – accounting for nearly half of total drug spending for exchange plans, the company said.” (Reuters, 2.28.17)
  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Retail prescription drug spending grew by 9.0 percent in 2015.
  • Altarum Institute. An analysis of U.S. Census Bureau’s Quarterly Services Survey (QSS) shows that year-over-year growth in prescription drug prices was 2.0% in 2014Q1, rising steadily to 5.0% by 2014Q4, increasing further to 5.5% in 2015Q1 and then declining to 5.2% in 2015Q2.
  • According to VOX, “Americans took more medications in 2013, too. The number of prescriptions filled rose by 3.8 percent after holding steady since 2009, according to pharmacy chain CVS Caremark.”
  • Council of Economic Advisors. This report provides a chart showing 4Q over 4Q trends in the growth of aggregate spending on pharmaceuticals from 2008-2015. The Council of Economic Advisers concludes: “There was a sharp uptick in the rate of spending growth in mid-2013… the uptick in spending growth is much larger than can be accounted for by recent coverage expansions. Available data indicate that the main factor driving faster drug spending has been the arrival of costly, though often effective, new therapies. While the implications of the recent acceleration in drug spending for the overall health care spending outlook should not be overstated since drug spending currently accounts for only about one-tenth of total health care spending and drug spending growth may decline somewhat relative to its recent rapid pace, trends in this area have raised concerns about access and affordability in both the public and private sectors.”

Health Spending by Payer

Medicaid

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Total Medicaid spending by federal and state and local governments reached $545.1 billion in 2015 (Exhibit 1) and accounted for 17 percent of total national health expenditures. Medicaid spending continued to grow at a strong rate of 9.7 percent in 2015, following growth of 11.6 percent in 2014 (Exhibit 1).
  • Medicare Cost per Enrollee. From 2000-2010, average spending per Medicare enrollee grew at an average annual rate just under 6.0%. Since 2010, average annual growth has been considerably lower than this (e.g., 1.0% expected for 2015). Note that the oldest members of the Baby Boom generation first turned 65 in 2010, so this demographic shift in the age mix of Medicare enrollees would have been expected to slow growth in spending per enrollee to some extent regardless of the ACA.

Medicare

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Total Medicare spending reached $646.2 billion in 2015 (Exhibit 1) and accounted for 20 percent of total health care spending. Medicare spending grew 4.5 percent in 2015, slightly slower than the growth of 4.8 percent in 2014 (Exhibit 1), as a result of trends in Medicare enrollment. Overall, Medicare enrollment increased 2.7 percent in 2015 (slower than the growth of 3.1 percent in 2014), reaching 54.3 million beneficiaries (Exhibit 3).

Private Health Insurance

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Total expenditures for private health insurance reached $1.1 trillion and increased 7.2 percent in 2015, compared to 5.8 percent in 2014 and 2.1 percent in 2013. Private health insurance continued to be the largest payer of health care in the United States, accounting for 33 percent of total health care spending.

Out-Of-Pocket Spending

  • CMS, Office of the Actuary. 2015 Expenditures. National Health Spending: Faster Growth In 2015 As Coverage Expands And Utilization Increases (December 2016). Total out-of-pocket spending—which consists of direct consumer payments such as copayments, deductibles, coinsurance, and any spending on noncovered services—reached $338.1 billion and increased 2.6 percent in 2015, following growth of 1.4 percent in 2014. Out-of-pocket spending was affected in both years by changes in health care coverage, as there was a decrease in the number of people without coverage who were paying their expenses out of pocket. At the same time, however, faster growth in utilization associated with expanded insurance enrollment and increased cost sharing associated with a larger percentage of workers enrolled in high-deductible health plans11 led to more out-of-pocket spending. On balance, in 2015 these factors contributed to the acceleration in out-of-pocket spending. From 2008 through 2015, average annual growth in out-of-pocket spending was 1.9 percent, lower than the average annual growth in overall health care spending of 4.3 percent during the same period. As a result, the out-of-pocket spending share of total health care expenditures fell from roughly 13 percent in 2007 to 11 percent in 2015.

Role of ACA in Affecting Health Spending

National health expenditures have risen more slowly over the last few years than during the first decade of the 21st century. There is considerable debate over the ACA’s role in contributing to this slowdown. In 2014, there was a surge in health spending that most concede was attributable to ACA, but with less consensus about how temporary this increase will be.

Evidence Regarding 2014 Increase in Health Spending

Evidence That Slowdown Not Attributable to ACA

Skeptics have offered several major reasons that the slowdown in health spending is not likely to be attributable to the ACA:

  • Private Sector Innovation
    • Torinus, John. Look Deeper on Health Costs. (11.16.15) “Brooks pointed out that health care prices have grown at 1.6 percent per year over the last five years. That’s one-fifth of the hyperinflation rate over four decades before that. Like all journalists, The Times columnist is somewhat of a captive to his sources…He would do well to get out and about and talk to payers at the ground level – especially those in the private sector… They are engaged in what’s called disruptive innovation.
      • Four of five private companies with more than 200 employees have converted to self-insurance…That’s been the missing link until now: management science is being brought to bear.
      • The pivotal date for the health care revolution was not 2010 when Obamacare (ACA) was rammed through Congress, as Brooks’ sources suggest, but 2002 when Health Savings Accounts (HSA) were created by Republicans…14 million consumers have signed on for HSAs and high deductibles. This army of consumers is demanding quality of care, service and lower prices. 
      • Their employers are showing them the way with better consumer information on value. For instance, a company in Texas called Compass offers transparency and navigation to more than 2,000 companies. Consumer-driven plans lower costs 20 percent to 30 percent.
      • Thirty percent of the nation’s largest corporations now offer proactive primary care at the work site…Costs drop another 20 percent to 30 percent.
      • Private payers are increasingly demanding value: low infection rates, same-day appointments, low readmission rates, bundled prices for procedures and careful selection of specialists. Corporations are cutting deals with the nation’s best hospitals for elective surgeries. They will cover the full cost if employees will travel. Again, costs/prices drop sharply. That is called deflation, and it offsets the inflation in under-managed government payer programs.

      The throttle on the inflationary curve can be found at the ground level in this innovative nation. It’s happening company-by-company, consumer-by-consumer.”

  • Spending Slowdown Has Occurred in Other Countries.
    • Organization for Economic Co-operation and Development (OECD) data show the average growth rate in per capita health spending among its member countries fell from 4.1 percent over the period 2000-2009 to 0.2 percent between 2009 and 2011. Thus, “The financial crisis of 2008 had a powerful impact on global health care markets, and the United States is no exception.”
    • Squires (2014) reports: “In the 1980s, US excess growth far exceeded the OECD median excess growth. Over the past 20 years, however, the US and OECD median rates of excess growth have tracked each other quite closely. Furthermore, in recent years, rates of excess health care spending in the United States and OECD have declined below their historical norms; in 2010 and 2011 (and 2012 for countries with available data), excess spending was either negligible or negative. The slowdown in health care spending growth has been a global phenomenon; in fact, US excess growth in 2010 and 2011 was slightly higher than average relative to other industrialized countries.”
    • “Examining the data visually presented in the chart above, we find that each of the indicated nations that experienced major recessions in the period from 2007 onward has also experienced a significant deviation in the trajectory of their PPP-adjusted health care spending per capita, the degree of deviation coinciding with the duration and severity of their respective periods of recession…It would then be much more accurate to say that the trajectory of health care spending in the U.S. after 2007 has much more to do with the recession and the atypically slow economic recovery the nation has experienced in the years than any aspect of the passage of the Affordable Care Act or its implementation since 2010. We therefore reject the claim that the bending of the cost curve for health care expenditures per capita in the United States may be attributed to the passage and implementation of the Patient Protection and Affordable Care Act in any meaningful way. Given what we observe in other nations, where Obamacare was not implemented, it is clear that recession and enduring anemic economic growth are a much more convincing explanation that explains the downward bending of the cost curve for health care spending that we actually observe over time.” (Townhall Finance, 5.8.15)
  • Spending Slowdown Mirrors Historical Patterns. “The current health expenditure trend is consistent with the historical pattern of near-GDP health care spending growth in the two to three years following the end of a recession, which portends a return to high spending growth as the economy recovers. The National Health Expenditure Accounts (NHEA) staff believes there is little evidence to suggest the pattern has been broken.” Conor Ryan at American Action Forum has provided a chart demonstrating similar periods of slow growth have happened in the past and rarely last longer than a few years. Note that the recession cannot explain more than half the slowdown however (see below).
  • Higher Patient Cost-sharing. This is in part due to expansion of high-deductible health plans.
    • Ryu et al. (2013)  conclude that increases in cost-sharing can account for only 20% of the slowdown;
    • Chandra et al. (2013) use literature-based estimates of the relationship between utilization and cost-sharing to conclude that cost sharing accounts for more than 20% of the slowdown although the precision of their estimates is limited due to the poor quality of recent data.
    • The White House (2013) notes that greater cost-sharing cannot explain all of the slowdown since “the slowdown in Medicare fee-for-service spending has been even more dramatic than the slowdown in the private sector, and there have been no substantial changes to the core Medicare benefit design in recent years.”
    • Deductibles Grew Less Than Historic Trends. The Council of Economic Advisors notes that trends in the growth of deductibles have matched historic trends (if anything, growth in the size of deductibles has been slightly lower than historical trends, as shown in a chart derived from KFF/HRET Employer Health Benefits Surveys).
    • Workers Without Out of Pocket Limit Have Plummeted. Also, a countervailing factor noted by the CEA is that “starting in 2014, the ACA required that all non-grandfathered health insurance plans place a limit on total annual out-of-pocket spending, protection which 18 percent of workers enrolled in single coverage lacked as of 2010, according to the Kaiser survey. The share without an out-of-pocket limit drifted lower after 2010 (possibly in part because firms were preparing for 2014), then fell sharply as the ACA requirement took effect; today’s data show that just 2 percent of workers in single coverage lacked such a limit in 2015. If the prevalence of out-of-pocket limits had remained at its 2010 level, we estimate that at least 22 million people enrolled in employer coverage would lack this protection today.”
  • Numerous Patent Expirations for Blockbuster Brand-name Drugs.
    • Average annual growth in prescription drug spending per capita from 2010-2013 was -1.6%.
    • The White House (2013) has codified various references attributing this to “expiration of patent protection (or loss of market exclusivity) for many important drugs. Due to a slowdown in the invention of new drugs that dates back many years, these drugs are not being replaced by newly-invented drugs.”
    • But this cannot explain much of the slowdown since pharmaceuticals account for only 10% of health spending.
  • Other Non-ACA Factors. Other key factors identified by various researchers include:

Evidence That Slowdown Partially Attributable to ACA

Even the White House concedes that “the ACA is not the sole cause of the slowdown… Nevertheless, the ACA’s reforms aimed at driving out waste and improving quality are contributing to these trends in a meaningful way.” Evidence that ACA may have contributed to the slowdown include:

  • The Recession Alone Cannot Explain the Entire Slowdown. The recession alone does not appear to explain the entire slowdown in spending.  Studies are ranked based on estimated contribution of recession to health spending slowdown:
    • 75%. Kaiser Family Foundation/Altarum Institute (2013) found that the recession accounted for 75% of the health spending slowdown.
    • 70%. Dranove et al. (2014) examine how changes in health spending varied by city, finding that most of the slowdown in health spending occurred in cities experiencing the largest economic slowdown, concluding that 70% of the slowdown in health spending between 2008 and 2010 was due to the Great Recession.
    • <50%. Council of Economic Advisors (2013) analyzed state-level unemployment and health spending from 2007-2009, concluding that increased unemployment could explain only a small share of the slower growth in health spending during this period; although they did not quantify how much, they conclude a “substantial” portion of the slowdown is due to structural factors rather than the recession.
    • <50%Chandra et al. (2013) likewise applied the largest credible estimate of the income elasticity of health spending to the observed slowdown in GDP growth, concluding that the slow economic growth in recent years explains less than half of the recent slow growth in health spending.
    • 41%. Herring and Trish (2015) attribute 41% of slowdown to recession and another 29% to conventional structural factors such as income, insurance and provider supply.
    • 37%. Cutler and Sahni (2013) concluded that 8% due to cuts in Medicare reimbursement (only some of these were due to ACA), 37% due to recession and 55% unexplained.
  • Large Slowdown in Medicare Spending. See Impact on Medicare Expenditures.
  • The Slowdown Appears in Health Care Prices, Not Just Health Spending. The administration argues this is proof that the slowdown cannot be explained by the recession alone (which would affect quantity, but not prices).

General Resources

Other resources that address the potential impact of the ACA on health spending include:

  • Welcome to the PPACA Cost (Or Savings) Dartboard.
  • Altarum Institute. “The Altarum Institute in Ann Arbor, Mich. tracks health spending growth by month. It saw an uptick in late 2013 that has continued into preliminary numbers for 2014.” (bar chart for 2010-12.2013 at Vox, 4.15.14).
  • Chandra, AmitabhJonathan Holmes, and Jonathan Skinner. Is This Time Different? The Slowdown in Healthcare Spending, Working Paper 19700 (National Bureau of Economic Research, December 2013). These authors conclude that key factors behind the slowdown in health spending from 2009-2012 to an expansion of high-deductible health plans, spill-over effect from enrollment in managed care, states’ efforts to control Medicaid spending, and a slackening in the diffusion of new technologies. They predict a growth rate of GDP plus 1.2 percent, resulting in NHE growing from its current level of 17.9 percent of GDP to 23 percent by 2032.
  • Council of Economic Advisors2013 Economic Report of the President. Chapter 5 includes an analysis of changes in state-level unemployment from 2007-2009 to state-level health spending growth over that period shows that unemployment reduces health spending, but the effect is small, so it cannot explain most of the recent downturn in health spending.
  • Cutler, David and Nikhil R. SahniIf Slow Rate of Health Care Spending Growth Persists, Projections May Be Off by $770 BillionHealth Affairs, 2013, 32(5), 841-850. All findings are based on a model relating current health spending growth to a five-year average of economic growth. Authors conclude that spending growth in 2011 and 2012 is on the low end of the historical range (even accounting for the recession). More than half of the slowdown over the period 2003-2012 is due to factors other than the recession. They conclude that “fundamental changes” are underway in the health sector, changes that are not attributable to the recession alone.
  • Stephanie Cutter (Former Assistant to the President and Deputy Senior Advisor). (1.26.11) Health Care Costs. “In previous analyses of the Affordable Care Act, the (CMS) Actuary discounts proposals that other independent experts credit with getting at the root causes of health care cost growth… The plan gives health care providers incentives to coordinate care to improve the quality of care as well as efficiency. These policies will bring down health care costs, but they are undervalued by the Actuary. The Actuary has also raised concerns that implementing these cost control measures may not be possible… we are confident the Affordable Care Act will help bring down health care costs. And we’re not alone. Health policy experts and economists who have studied the bill agree that the new law utilizes almost all the possible tools to reduce health care costs. Just yesterday, nearly 250 leaders, including two Nobel laureates, for former Council of Economic Advisors members, one former Congressional Budget Office chief, high ranking economists and budget experts signed a letter saying, ‘The Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending.’”
  • Dranove D, Garthwaite C, Ody C. Health spending slowdown is mostly due to economic factors, not structural change in the health care sector. Health Aff. 2014;33(8):1399-1406.
  • Executive Office of the PresidentTrends in Health Care Cost Growth and the Role of the Affordable Care Act, Executive Office of the President of the United States, November 2013.
  • Hartman M, Martin AB, Lassman D, Catlin A; the National Health Expenditure Accounts Team. National health spending in 2013: growth slows, remains in step with the overall economy. Health Aff. 2015;34(1):150-160.
  • Herring, Bradley and Erin Trish. Explaining the Growth in US Health Care Spending Using State-Level Variation in Income, Insurance, and Provider Market Dynamics.
    • 70% of Slowdown Due to Structural Factors/Recession. “We find that at least 70%, if not all, of the recent slowdown in health care spending appears to be explained by these predictable factors [state-level differences in income, insurance, and provider characteristics]. The most important one of these factors appears to be the Great Recession’s effect on reduced real per capita income and the subsequent effect on reduced health care spending, as about 41% of the recent slowdown can be explained by these reductions in income.
    • 1% Increase in Spending in 2019 Due To ACA. “When applying our regression model’s estimates for the relationship between Medicaid coverage and health care spending to the CBO’s projections of changes in Medicaid coverage resulting from the ACA’s insurance expansions, we find that the level of total health care spending in 2019 is likely to be about 1% higher than it would have been in the absence of these expansions.”
  • Holohan J, McMorrow S. What Drove the Recent Slowdown in Health Spending Growth and Can it Continue? Urban Institute Report, Washington, D.C.: May 6, 2013.
  • Kaiser Family Foundation and Altarum Institute. Assessing the Effects of the Economy on the Recent Slowdown in Health Spending. (April 22, 2013).  Results are based on a model relating current health spending growth to economic growth in each of the last five years and general price inflation in each of the last three years. Authors conclude that most of recent slow growth in health care spending is attributable to the recession. However, over the longer period 2008-2012 they attribute 23 percent of the slowdown  to factors other than the recession.
  • Peterson-Kaiser Health System Tracker (3.29.16). A New Way of Measuring Health Costs Sheds Light on Recent Health Spending Trends. “Our analysis of this new spending data reaffirms a couple of findings from previous studies of recent health spending trends.  As has been described in previous studies, we find evidence that the economic downturn played a role in the health spending slowdown and that it continued to play a role in health spending growth during the post-recession period.  Following a slowdown in treated prevalence to zero annual growth during the recession years, there was a rebound in disease treatment during the post-recession period that can be seen across each major disease category.  However, the magnitude of the uptick in treated prevalence varied quite a bit by disease, suggesting that disease-specific mechanisms and structural factors were also at play.”
  • Ryan, ConorHealth Care Expenditures: Success, Cycle, or Something Else? (July 1, 2014).  Some recent reports of slower-than-expected growth have prompted optimism that the Affordable Care Act has brought lasting change to the health care industry. Unfortunately, such praise is likely premature. A number of factors may be contributing to the slowdown—such as the economy and changes in the market landscape—but as shown in the chart below, similar periods of slow growth have happened in the past and rarely last longer than a few years.
  • Ryu, Alexander J.Teresa B. GibsonM. Richard McKellar, and Michael E. ChernewThe Slowdown in Health Care Spending in 2009-11 Reflected Factors Other than the Weak Economy and Thus May Persist. Health Affairs, 2013, 32(5), 835-840.
  • Squires D. The Global Slowdown in Health Care Spending GrowthJAMA. Published online June 26, 2014.
  • Millman, Jason. What Would It Cost to “Fix” Obamacare? “I thought it would be a fun and useful exercise to round up Obamacare ‘fixes’ that have garnered the broadest support and look at what they could potentially cost. How to pay for them — well, that’s another story.” (Washington Post, 6.18.14)
  • Blahous, Charles. I Was Right About the ACA. “Around and after the time that the Affordable Care Act was enacted, many analysts identified problems with claims being made about the law, and we offered explanations of its likely actual effects. Too often these were brushed aside amid efforts to promote the ACA in the face of growing public opposition. But four years into the ACA, it is remarkable how well our predictions have been borne out:
    • States will make a variety of decisions with respect to expanding Medicaid.
    • Expanding Medicaid will cost the states money, in part because of the ‘woodwork effect.’
    • The ACA will significantly worsen the federal budget deficit.
    • Expanding health insurance coverage will increase health service consumption and costs.
    • There was a substantial risk that cost savings projected for several ACA provisions would not fully materialize.” (Economics21, 6.30.14)
  • Sanger-Katz, Margot. Has the Law Contributed to a Slowdown in Health Care Spending? “It is hard to make a case that the Affordable Care Act deserves substantial credit for the recent trend — though it may be helping to nudge it along. The spending slowdown began before the law was even written. The major provisions of the law intended to slow down spending growth have mostly come in the form of small-scale experiments, and studies of those programs have shown mixed results. The law’s signature Medicare initiative, the Accountable Care Organization, has yet to demonstrate the savings its authors promised; recent results from the Department of Health and Human Services show that only a fraction of participating systems have succeeded in saving money. Meanwhile, the growth in health spending has been slowing down around the world, suggesting that the cause may not be something special happening in this country.” (New York Times, 10.27.14)

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