The ACA: A Good Deal? Maybe Not...

A recent study published in Health Affairs has been used by some commentators on the left to argue that the Affordable Care Act (ACA) is not the deficit-raising monster it's made out to be. The point of contention is a graph from the study that purportedly shows average growth rate of National Health Expenditures (NHE):


At first glance, it would seem that this graph vindicates the ACA - come 2021, the difference in growth rates between NHE pre-and-post ACA have fallen to less than a percentage point.

What they gloss over, however, is the massive spike in growth rates starting in 2014, when the ACA's coverage provisions go into effect. This adds to the absolute cost of the ACA over time, even though the growth rate slows down eventually, based on projections.

For a deeper look at what this will look like, the study breaks it down by sector:


The effects of the ACA don't appear to be quite so subtle anymore.

Overall, NHE will continue to grow uninhibited:


More importantly, what those trumpeting the trend line compared to pre-ACA projections fail to note is that the ACA's "cost savings" (which moderate growth rates in the out years) are based on numerous assumptions, some of which are less realistic than others:

  • The Sustainable Growth Rate (SGR) formula, as well as the Budget Control Act of 2011 (the "fiscal cliff") is set to cut physician's reimbursement from Medicare, slowing Medicare's growth rate to 1.3 percent in 2013, from 5.9 percent in 2012. The study points out that under an alternative projection where physician fee schedule rates grow at one percent from 2013 on, Medicare's growth rate is set to slow down only slightly to 5 percent. Whether this cut will be maintained is up for debate. Congress has, in fact, put off SGR cuts every year since 2002. If it is implemented, Medicare growth will slow, but surveys also suggest many physicians will stop accepting Medicare; among those will be even be the Mayo Clinic. If the cut isn't implemented, and experience suggests it won't be, Medicare will grow at a much faster rate.

  • The slower growth rates in Medicare after 2014 (2015-2021) are also contingent on the SGR cuts and the budget sequester. Again, the reality of these cuts going through is questionable.

  • Further moderating the growth of costs across the board is belief that the excise tax on comprehensive coverage plans - commonly known as the "Cadillac tax", starting in 2018 - will force people into lower cost plans with tighter utilization requirements.  However, the tax was fought off by union supporters in an earlier incarnation of the ACA, and the will likely try to delay or kill implementation yet again.   The study also assumes that most of the productivity adjustments for providers in the ACA will be implemented as written, itself a dubious assumption and one that has been questioned by CMS.

Other factors will play an as of yet undetermined role in the ACA's costs - the final definition of essential health benefits for plans sold on the exchanges, whether or how many employers "dump" employees into the exchanges (and pay the fine for doing so), and the impact of the individual mandate on insurance take-up by the young and healthy (if many young and healthy uninsured opt out of the mandate, the exchanges will be forced to cover a pool of sicker and more  expensive patients - costs that will be passed along to taxpayers).  There's also the variable of how many states will opt out of the ACA's Medicaid expansion and send more of the uninsured to the state exchanges. 

In short the ACA is, at a minimum, an enormously expensive coverage expansion - and because many elements of its cost savings provisions are weak or uncertain at best (like the SGR cut) the fiscal downside of the legislation will even more pronounced if everything doesn't pan out exactly as its advocates hope. 

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