Column: Obamacares secret success

Nov 30 2013, 04:57 IST
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SummaryFollow the bending cost curve and you will find that the slowdown in health costs has been dramatic

The law establishing Obamacare was officially titled the Patient Protection and Affordable Care Act. And the affordable bit wasnt just about subsidising premiums. It was also supposed to be about bending the curveslowing the seemingly inexorable rise in health costs.

Much of the Beltway establishment scoffed at the promise of cost savings. The prevalent attitude in Washington is that reform isnt real unless the little people suffer; serious savings are supposed to come from things like raising the Medicare age (which the Congressional Budget Office recently concluded would, in fact, hardly save any money) and throwing millions of Americans off Medicaid. True, a 2011 letter signed by hundreds of health and labour economists pointed out that the Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending. But such expert views were largely ignored.

So, hows it going? The health exchanges are off to a famously rocky start, but many, though by no means all, of the cost-control measures have already kicked in. Has the curve been bent? The answer, amazingly, is yes. In fact, the slowdown in health costs has been dramatic.

OK, the obligatory caveats. First of all, we dont know how long the good news will last. Health costs in the United States slowed dramatically in the 1990s (although not this dramatically), probably thanks to the rise of health maintenance organisations, but cost growth picked up again after 2000. Second, we dont know for sure how much of the good news is because of the Affordable Care Act.

Still, the facts are striking. Since 2010, when the Act was passed, real health spending per capitathat is, total spending adjusted for overall inflation and population growthhas risen less than a third as rapidly as its long-term average. Real spending per Medicare recipient hasnt risen at all; real spending per Medicaid beneficiary has actually fallen slightly.

What could account for this good news? One obvious answer is the still-depressed economy, which might be causing people to forgo expensive medical care. But this explanation turns out to be problematic in multiple ways. For one thing, the economy had stabilised by 2010, even if the recovery was fairly weak, yet health costs continued to slow. For another, its hard to see why a weak economy would have more effect in reducing the prices of health services than it has on overall inflation. Finally, Medicare spending shouldnt

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