Maybe Obamacare Is Bending the Health Costs Curve

A new report from the nonpartisan Congressional Budget Office (CBO) is the latest signal that something is happening to push health costs in a favorable direction. The CBO is removing hundreds of billions of dollars from its estimates of how much the federal government is spending healthcare. The new estimate is 15% below what was budgeted at the beginning of 2012. This news comes after four years of record slow growth in health costs that experts initially attributed to the slow economy. But increasingly, even skeptics are beginning ask if some fundamental changes are being prompted by Obamacare.

Commenting on the new numbers, CBO Director Douglas Elmendorf said that a “significant part” of the savings are coming from a structural change in how healthcare is delivered. Some of these changes actually began before the Affordable Care Act (ACA) passed, and were having a positive effect. But the ACA locked in changes to how doctors and hospitals are paid and applied them to all providers throughout the nation. These are changes that favor paying for good health outcomes rather than paying for procedures. The result is increasing financial pressure to deliver more health per dollar spent.

While Elmendorf is rigidly nonpartisan and cautious in his assessment of health costs, Ezekiel Emanuel is not. Writing in a New York Times op-ed this week, Emanuel’s enthusiasm was showing:

This is truly a sea change. Look at Medicare: over the last 43 years, costs per beneficiary grew 2.7 percent faster than the overall economy. That’s why Medicare spending rose from $7.7 billion in 1970 (or 0.7 percent of gross domestic product) to $551 billion in 2012 (almost 4 percent of G.D.P.). But this trend has finally reversed; over the last three years, Medicare costs per person have grown 1.3 percent slower than growth in the overall economy. In January, a Department of Health and Human Services report showed that Medicare spending per beneficiary grew just 0.4 percent in 2012.

This slowdown is not limited to Medicare, nor is it simply the result of belt-tightening in the wake of the Great Recession. Since 2004 — nearly four years before the economic downturn — the rate of health care inflation per person has been just 0.8 percent higher than the growth of the G.D.P. Between 1965 and 1993, for comparison, it was 3.2 percent higher.

Even Emanuel admits that declaring victory over health costs would be premature. But we’ll take all the good news we can get.

Click here to read more in Forbes, here to read Emanuel’s commentary in the New York Times, and here to read more about the CBO estimates of federal healthcare spending in the New York Times.

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