Has the Affordable Care Act slowed down health spending?

affordable care act

The Affordable Care Act may be one of the reasons that healthcare spending has slowed down in the past few years, but it is far from being the only reason. As a matter fact, the stunted growth of health expenditure in across almost all measures (including medical price growth, employer insurance premiums, and per capita Medicare spending) started prior to Obamacare being signed into law. Moreover, economists have been at a loss to explain this slowdown, though recession, higher-deductible policies discouraging people from seeking medical care, the rise of more affordable generic drugs, and changes in healthcare delivery are cited as factors.

Additionally, decreasing healthcare spending has been a worldwide trend, suggesting that local efforts have had little to do with it. The ACA’s provisions meant to arrest spending growth have been limited to small experiments with mixed results. As president of the right-leaning American Action Forum and a former director of the Congressional Budget Office Douglas J. Holtz-Eakin puts it, “the experiment is on, and everyone knows they’re a lab rat.” One example is the Accountable Care Organization – the law’s vaunted Medicare initiative – has not yet shown the promised savings. According to the Department of Health and Human Services, only a portion of participating systems have saved money.

On the other hand, the aforementioned changes in healthcare delivery thought to have influenced the slowdown are likely to be associated with health reform. For instance, Obamacare has enforced penalties in hospitals with a high number of readmissions. Previously, hospitals had no motivations to reduce the number of returning patients; in fact, they got paid for both the original and any subsequent visits. Proponents of the Affordable Care Act – who might also belong to the Candide school of thought – claim that the ACA has lowered the amount of readmissions, and cite this as a way in which the law has made healthcare inexpensive.

However, readmissions only represented a small slice of health spending and can’t be credited for the general slow in growth. Not only is Obamacare not fully responsible for the decrease in spending, but it could potentially drive health costs up in the near future. The more people are covered by insurance, the more people will see doctors and fill prescriptions, and that is not cheap – even with price of services leveling off and less wasteful medical practices. It remains to be seen if the slowing trend in medical spending can be maintained after all those newly-insured people are assimilated into the system. 

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