Truth Squad: Is “Obamacare” Pushing Health Care Spending Higher? What Will Happen in 2014?

In last Tuesday’s debate Mitt Romney suggested that, under Obamacare, health insurance premiums have spiraled by $2,500 per family. Not true.  (Hat tip to

 First let’s get the number right: According to an annual survey of employer plans  by the Kaiser Family Foundation and Health Research & Educational Trust, since the Affordable Care Act (ACA) passed in 2010, the average annual premium for family coverage has risen by $1,975 not $2500.  $1975 is a hefty sum, but 20% less than Romney claimed.

More importantly, $1,975 represents the combined increase in contributions made by employers and employeeswith employers picking  up the lion’s share of the hike. “In reality, premiums paid by employees haven’t changed that much.Factcheck observes. In fact, when you look at the rise in how much employees contributed, “the federal health care law was responsible for a 1 percent to 3 percent increase because of more generous coverage requirements.” In other words, employees were paying a little more, but getting value for their dollars.

After telling a whopper about how much employee’s health care premiums have risen in the past, Romney went on to assert that if Obamacare is  “implemented fully, it’ll be another $2,500 on top” of that. His evidence?  None.

                                              The Media Spreads the Myths

Yet the media continues to swallow the notion that under “Obamacare” health care spending will levitate. A few days ago, the Washington Post’s Robert J. Samuelson wrote: “Almost every expert agrees that controlling health costs is the crux of curing chronic budget deficits. Health-care spending already exceeds a quarter of federal outlays. With Obamacare’s coverage of the uninsured starting in 2014 and retiring baby boomers flooding into Medicare, the share is headed toward a third.”

As evidence, Samuelson links to a report from the Office of Management and Budget. (OMB) But if you take a close look at the chart on p. 353 of the OMB report that he cites,, you will find that, when Obamacare kicks in, federal outlays for health care, as a percentage  of GDP, are projected to rise only slightly from 6.4% of GDP in 2011 to 6.7% in 2014 and 2015. And this is just a guesstimate: recent trends suggest that Medicare spending already has begun to slow–and reform has not yet been implemented.

Moreover, under Obamacare, the only significant jump in federal spending on health comes in the form of Medicaid spending.  theAffordable Care Act expands the program to cover the millions of adults who, in most states, don’t qualify for Medicaid, no matter how poor they are, simply because they don’t have children. Beginning in 2014, they will have access to free preventive care that, in the long run, is likely to make them healthier, reducing the long-term  cost of their care.

As for retirees “flooding” into Medicare, as I have explained in the past, we really don’t have to worry about a wave of greedy geezers suddenly clamoring for more care than we can afford.  The boomers will not grow old all at once;; they will age, just as they were born—over a period of many years. (Hat-tip to Princeton economist Uwe Reinhardt)

Though, as Reinhardt pointed out to the audience at a “World Health Care Conference” that I attended in Berlin in 2008: “If you want to be a popular speaker you need to feed the paranoia of your audience . . .  A  speaker who wants to grab his
audience’s attention may well scale a chart so that the demographic change looks like a tsunami that could wipe us out.” The truth is much less sensational.  (Nevertheless, the myth that the Pepsi Generation is about to overwhelm Medicare is useful to Republicans who want to pretend that we must turn it into a voucher program.)

 Medicare Spending and Overall National Healthcare Spending—Both Are Slowing

Earlier this week, former Office of Management and Budget (OMB) Director Peter Orszag laid out the facts about trends in healthcare spending in a Bloomberg column headlined: “Slower Growth in Health Costs Saves U.S. Billions.”  

 “The U.S. continues to experience a very marked slowdown in the growth of health-care costs,” Orszag writes, “despite some widely misinterpreted new reports. And a growing body of evidence suggests the deceleration is driven by more than a temporarily weak economy — which is good news for the federal budget and for workers.” 

Both Orszag and I have been writing about the slow-down in Medicare spending since August of 2011.  Now Orsag points out that total “National health expenditures rose just 3.8 percent from August 2011 to August 2012, according to an Oct. 11 report from the Altarum Institute.”

Moreover since health reform legislation passed in 2010 year-over-year growth in medical spending has been sliding. (For example, in August 2012, spending grew by signfiicantly less than 4%–down from more than 4% in August 2011. )

Meanwhile, “ Medicare spending increased by only 3.2 percent in the fiscal year ending in September 2012, according to the Congressional Budget Office.  . “These are remarkably low growth rates,” Orszag remarks. “Consider that over the past four decades Medicare spending increased by more than 10 percent a year.”

As I have argued in the past, health care bills are leveling off in part because providers are becoming more cost-conscious. They know that, when reform is fully implemented in 2014, we will be moving away from fee-for-service payment.  This means that they will be rewarded for value—providing better care for less..Already, many are beginning to focus on squeezing the waste out of their systems.

“Nevertheless” Orszag observes, the fear-mongers continue to insist that health care reform is having no effect on health care outlays. “Last month, many commentators falsely declared the end of the slowdown — largely exaggerating the findings of a report issued by the Health Care Cost Institute.

 That report showed expenses for those with employer-sponsored insurance rose 3.8 percent in 2010 and 4.6 percent in 2011. This modest change was initially described as a “surge.” Orszag notes, “yet by historical standards even 4.6 percent growth is very low– and one shouldn’t make too much of a 0.8 percentage-point change from one year to the next. What’s more, employer- sponsored insurance is only one component of total health spending.

“The Altarum figures. . .  also showed a modest acceleration in 2011,” Orszag points out,  but then the pace slowed again. “Our data indicate that the 2011 acceleration was not sustained,” the report notes. “Spending growth declined in the latter half of 2011 and dropped even further in the most recent months.”

Looking ahead, he suggests that “There is good reason to think that lower growth will persist even after the economy turns around. For instance, costs have decelerated more for Medicare than for employer-sponsored insurance, suggesting that the shift isn’t entirely caused by the slow economy.”  

Recently the Health Management Academy of industry leaders conducted a survey asked chief executives of health- care systems two key questions: What share of your revenue in 2020 will be derived from payment schemes other than fee-for- service? And what share of clinical decisions made in 2020 will be supported by software programs? “The average responses were 62 percent and 95 percent, respectively,” Orszag observes.  “In other words, health-system leaders are anticipating two significant shifts over the next eight years: away from fee-for- service payments and toward clinical-decision support. Both of these changes promise to improve value and slow cost growth.

He also points to calculations from two Harvard University economics professors, David M. Cutler and Jeffrey B. Liebman who examined changes in the national health-care spending projections published by the Centers for Medicare and Medicaid Services.

“In January 2009, the centers projected that expenditures would reach 19.8 percent of gross domestic product in 2017. This year, the projection for 2017 is down to 18.4 percent of GDP. That difference amounts to a whopping $280 billion. In other words, relative to the projections issued three years earlier, today’s forecasts suggest health savings of $3,500 per family of four by 2017.”

These are only estimates; they could be optimistic. But one thing is certain:  medical spending trends are headed in the right direction.  At last, we seem to be breaking the back of healthcare inflation.



7 thoughts on “Truth Squad: Is “Obamacare” Pushing Health Care Spending Higher? What Will Happen in 2014?

  1. We all know the old saying about real estate prices – location, location, location.

    In health insurance the counterpart is demographics, demographics, demographics.

    Large company insurance premiums are fairly stable. They are by far the easiest for Kaiser and others to measure.

    Small group and indvidual premiums are unstable now, have been unstable for years, and are probably a little more unstable now because many insurers are going to leave this market under the ACA and want to make more profit on their way out the door. Insurers also use closed blocks and other techniques drive long-time customers away….it is called lapse-supported pricing, and you see it in life insurance and LTC insurance as well. (I am a broker.)

    One other point, also demographic in nature…..

    even if Medicare’s per-person costs are slowing down, the sheer volume of 2-3 million baby boomers starting to hit 65 every year is going to take a budgetary toll. The challenge is not the percent of GNP that Medicare calls for……the challenge is the percent of federal tax revenues that Medicare consumes.

    GNP went up from 2000 to 2010 (I do not know exactly how much)……..but federal tax revenues were flat, and I mean dollar flat, not adjusted for inflation. David Cay Johnston covers this well.

    Even with lower inflation, Medicare will require $1 trillion a year in about 2021. (Volsky has a table to confirm this in his blogs.) Federal tax revenue today is about $2.5 trillion. Will it grow? I have my doubts.

  2. Bob–

    Good to hear from you.

    On Medicare: in this country, conservatives have been pounding the theme that the aging of the population will bankrupt us for a long time. (They use this to argue that we should get rid of entitlement programs like Social Security and Medicare.) It has gotten to the point that what they say has become part of the conventional wisdom. (It’s the “Big Lie theory that Nazi propogandist Goebbels taught: : tell a whopper, and repeat it often enough, and people will believe it precisely because the lie is so big. People think “they wouldn’t possibly say THAT if it weren’t true!”

    In fact, the notion that aging boomers will be driving health care costs to the skies just isn’t true.. (I’ve done a great deal research on this topic over a number of years, so I’m certain. But once a Big Lie becomes part of the CW it is very difficult to refute it..
    However, Princeton healthcare economist Uwe Reinhardt offers a number of very of useful charts.
    PLease take a look at this post:
    First, scroll down to a chart headlined “Projected US Health Spending 1990-2030.”
    You will see that what drives health care inflation is not the age of the population–it’s a minor factor.
    ‘What propels heat care spending Reinhardt points out, is “new technology. The health care industry will continue developing new stuff for every age group,” Reinhardt explains. Will that “new
    stuff”—in the form of new drugs, devices, tests and procedures—be worth it?
    Some of it will be., Over the past twelve years, rising spending on new medical technologies designed to address heart disease has not meant that more
    patients survived. (Heart patients are surviving because we have learned to use low-cost medications, including aspirin.) In many areas, we seem to have reached a point of diminishing returns. This also is true in the drug industry, where most new entries are “me too drugs”—little different from products already on the market, but usually more expensive.
    The second chart (on the same post) shows that in many countries with populations that are significantlly older than ours (such as Germany, Italy and Japan), health care spending is lower than in the U.S. See chart headlined: “Population Age and Health Care Spending – OECD)
    An aging population does not necessarily mean higher health care costs–if you weed out the wasteful spending, and refuse to over-pay for drugs, devices, equipment, etc. etc. .
    In addition, as a group, sixty-something boomers are going to be in better physical shape than earlier generations of seniors. In the 70s, a great many of them gave up smoking,
    switched from hard liquor to white wine, and began jogging and working out. As a result, many of them will avoid some of the expensive chronic diseases that plagued their parents–particularly smoking-related diseases.
    Finally, under reform, health care in the U.S. is going to be much more like health care in Germany–which, despite its older population, spends far less than we do., Doctors will be much more likely to follow evidence-based guidelines
    in order to garner the bonuses that will be available if they
    can achieve better outcomes for less. Hospitals will be on a tighter budget (Medicare will be cutting increases in payments to hosptials by 1% a year for 10 years. Compounded, that’s a lot of money. This means hospital will be tightening their belts (some already are), spending far less on frills (jacuzzis, expensive art, marble, etc.). (German hospitals are relatively Spartan, but very clean).
    Many smaller hopsitals will close (we don’t need as many
    hospital beds as we have) while large Centers of Excellence will thrive. (Insurers will be flying patients to these Centers– and paying their travel expenses. Some employers are already doing this. See Atul Gawande’s “Big Medicine” in a recent New Yorker (You can Google it.)
    Fewer, more efficient hospitals will bring down costs.
    Keep in mind, there is general agreement that 1/3 of Medicare dollars are now wasted on unncessary treatments, unnecessary hospitalizations, over-priced drugs and devices , unecessary surgery., As we move away from fee-for-service (which encourages doing more) and toward paying for value (better outcomes at lower prices) we’ll see less overtreatment.
    Bob, you write: “The challenge is not the percent of GNP that Medicare calls for……the challenge is the percent of federal tax revenues that Medicare consumes.”
    When GNP grows, federal tax revenues grow. This is why
    economists look at health care spending as a % of GNP.
    Since 2001, GNP growth has been very low– ranging from
    3.4% (just one year) to Negative 3.4% (one year) and averaging less than 2% most years.
    By contrast, from 1991 through 2000 GNP grew by more than 4% most years; in two other years it was well over 3%, and it didnt’ fall below 2.5%.
    When Congress passed legislation in the late 1990 saying that Medicare’s payments to doctors would be cut if they rose beyond a certain rate, they used a formula tied to GNP.
    They had no idea that GNP would ever fall to a point that the formula would call for cutting payments to doctors by 15% or 20%. But GNP growth did plunge. (Congress has refused to follow the formula because it never intended such Draconian cuts to Doctors’ Medicare payments.)
    So Federal revenues are low both because GNP growth has
    stagnated, and because of Bush’s tax cuts for the rich.
    Assuming Obama is elected, those tax cuts for the top 2% will disappear.
    In addition, he will have to raise taxes on others– probably the top 5%, increase (rather than get rid of ) inheritance taxes, etc.
    Tax rates in the U.S. are now at historic lows. We can’t afford this.
    Luckily, in his second term, Obama will no longer have to worry about being re-elected– this means that he can do things that may be unpopular, as long as he can twist enouigh arms to get the votes. I think his first term taught him that getting votes is not about reasonign with people; in Congress, it’s usually about twisting arms, promsing them something, threatening them . ..
    Will he be able to do it? Many thought Obama couldn’t pass health care reform during his first term, but he did.
    In his second term, I suspect that he will focus on a goal that he defined in the past “redistributing income”- this means higher taxes for the wealthy, and using the money to create jobs, improve education, etc. for low-income and middle-class Americans.
    In Congress, Obama will have most of the people who helped him pass health care reform to help him. this time aroudn And he will have some new faces. (If elected, Elizabeth Warren will be powerful.)
    Finally, Bill Clinton is now clearly on the Obama team, trying to move the Democratic party forward toward creating a fairer America. And the convention made it clear that Bill
    is now very popular with the public. As the “Secretary for explaining stuff” he could do a good job of ‘splaining the
    need for higher taxes.
    None of this will be easy. But I’m hopeful.

  3. Hi Maggie,
    Great to see your blog back. I appreciate the education I got on the ACA as it was developing. I look forward to scrolling through articles I have missed.
    Questions on this one:
    Your statement about the soon-to-be-Medicare population was comforting: “sixty-something boomers are going to be in better physical shape than earlier generations of seniors.” But how does this fit with the evidence that obesity is on the rise? Are boomers an exception to that trend?
    Do you really think: “In Congress, Obama will have most of the people who helped him pass health care reform to help him.” I haven’t seen any projection suggesting a Democratic House majority as in 2009-2010. We will know soon enough.

  4. Richard K– Good to have you back as a reader!

    On the question of who will survive in the House, as you say we’ll know soon enough. My guess is that Democrats wil hold onto the Senate, though much will depend on turnout among certain groups: women (particularly well-educated younger women) ,Latinos,
    African-Americans and Asians. In 2008 they voted for Obama, and pushed him over the top. (He got only about 48% of the total white vote, and less than that among white males. Polls show the same patterns today, though there are more Latinos who are eligible to vote — and registering to vote. I would guess there also are more well-educated young women.

    Yes, obesity is a problem for boomers. “Findings revealed that while approximately 36% of baby boomers are obese, the figure for the two generations directly above and below them is about 25%”
    On the other hand many fewer boomers smoke.
    We know that cigarettes kill, leading to lung cancer, emphysema, heart disease etc.
    “Obesity” on the other hand, doesn’t necessarily lead to
    chronic disease or deaths.
    First “obesity” covers a spectrum of
    conditions ranging from “morbid obesity” (which is deadly) to being pear-shaped.
    Much depends on how active you are—an overweight person who walks regularly and/or swims is less likely to develop heart disease than an average weight couch potato.
    In recent years we have, I think, exaggerated the importance of obesity because white upper-middle class Americans don’t like the way it looks.
    Being skinny is so important in our culture– we view it as a virtue– and tend to equate obesity with sloth, greed, etc. (It’s worth noting that in some Latino cultures, and among some African-Americans, curves are considered beautiful. Do African-Americans and Latino’s tend to die sooner than upper-middle class Americans? Yes, but this is largely beause more of them are poor. (Poverty does kill).
    Some reserachers argue that the “obesity epidemic” is in fact overblown. An article on Scientific begins
    “Obesisty:: An Overblown Epidemic? 2/8/2006

    “A growing number of dissenting researchers accuse government and medical authorities–as well
    as the media–of misleading the public about the health consequences of rising body weights
    . . . Could it be that excess fat is not, by itself, a serious health risk for the vast majority of people who
    are overweight or obese–categories that in the U.S. include about six of every 10 adults?

    The article points out that “figthing fat” has become a big business: “A report in February by
    Marketdata Enterprises estimated that in 2004, 71 million Americans were actively dieting and that
    the nation spent about $46 billion on weight-loss products and services.
    Dieting has been rampant for many years, and bariatric surgeries have soared in number from
    36,700 in 2000 to roughly 140,000 in 2004, according to Marketdata.”

    We have been told, over and over, that because of rising rates of obesity boomers will be more likely to suffer from high blood pressure, heart disease and cancer.. . .
    Yet a paper by
    Edward W. Gregg and his colleagues from
    the CDC published in JAMA found that even as Americans gained weight, the prevalence of high blood pressure in hte U.S. dropped by half between
    1960 and 2000. High cholesterol followed the same trend–and both declined more steeply among
    the overweight and obese than among those of healthy weight.
    So although high blood pressure is
    still twice as common among the obese as it is among the lean, the paper notes that “obese
    persons now have better [cardiovascular disease] risk profiles than their leaner counterparts did 20
    to 30 years ago.”
    The new findings reinforce those published in 2001 by a 10-year WHO study that examined 140,000
    people in 38 cities on four continents. The investigators, led by Alun Evans of the Queen’s
    University of Belfast, saw broad increases in BMI and equally broad declines in high blood pressure
    and high cholesterol. “These facts are hard to reconcile,” they wrote.
    It may be, Gregg suggests, that better diagnosis and treatment of high cholesterol and blood
    pressure have more than compensated for any increases from rising obesity. It could also be, he
    adds, that obese people are getting more exercise than they used to; regular physical activity is
    thought to be a powerful preventative against heart disease.”

    As for cancer, a 2003 report on a 16-year study of 900,000 American adults found significantly
    increased death rates for several kinds of tumors among overweight or mildly obese people. Most of
    these apparently obesity-related cancers are very rare, however, killing at most a few dozen people
    a year for every 100,000 study participants. Among women with a high BMI, both colon cancer and
    postmenopausal breast cancer risks were slightly elevated; for overweight and obese men, colon
    and prostate cancer presented the most common increased risks. For both women and men,
    though, being overweight or obese seemed to confer significant protection against lung cancer,
    which is by far the most commonly lethal malignancy. That relation held even after the effects of
    smoking were subtracted.
    Obesity’s Catch-22
    It is through type 2 diabetes that obesity seems to pose the biggest threat to public health. Doctors
    have found biological connections between fat, insulin, and the high blood sugar levels that define
    the disease. The CDC estimates that 55 percent of adult diabetics are obese, significantly more
    than the 31 percent prevalence of obesity in the general population. And as obesity has become
    more common, so, too, has diabetes, suggesting that one may cause the other.
    Yet the critics dispute claims that diabetes is soaring (even among children), that obesity is the
    cause, and that weight loss is the solution. . . ”

    Let me stop here. Anyone interested should go to the article. At the end, it suggests that we just don’t know that much about what obesity does and doesn’t “cause”
    ” Large, long-term experiments are the best way to test causality, because they can alter just one
    variable (such as weight) while holding constant other factors that could confound the results.
    Obesity researchers have conducted few of these socalled randomized, controlled trials. “We don’t
    know what happens when you turn fat people into thin people,” Campos says. “That is if not some
    oversight; there is no known way to do it”–except surgeries that carry serious risks and side effects.
    Finally, I would add that if you Google “obesity” and “overblown” you’ll find similar articles on Web M.D., the New York Times, etc.

    I certainly would not call the obesity epidemic a “myth” but probably our fears that ‘fat kills” are exaggerated. How much exercise you get is much more important than how you look. And certainly, I would be much more concerned about a 50-year-old friend who smoked than a middle-aged friend who was 25
    pounds overweight.

  5. Hi, Maggie. I am new at this but here goes. Maggie, you appear to be very biased when it comes to Mit Romney’s plans. You accuse others of twisting data to suit their own purposes, yet that is largely what I see from you – but isn’t that what individuals do in an effort to prove their point?
    Employees may not be paying significantly more in premiums but, keep squeezing the employers, and the employees will be paying nothing in premiums. You attack Romney for stating that we can expect another $2,500 cost when he has no evidence. Where is your evidence that this will not happen?
    What difference does it make if healthcare spending is slowing? It continues to increase at some rate every year and adds to the rising costs/debt. You claim later that President Obama will increase taxes to cover the costs. What difference does it make if you take my money in insurance premiums or taxes? To me by taking it in taxes is a way to give more money to the government and thus increase their power.
    Much of the cost of Medicaid is assumed by the individual states. Medicaid spending for the federal government may not significantly increase but we will break the states in the process – another case where we will not have to worry about costs when it is no longer available. In my experience as a nurse the majority of the poor does not want or understand preventive care. I simply do not believe it will reduce cost to provide that.
    Providing better care for less is a great idea. Tying it to patient satisfaction is questionable. I believe this is another way to force caregivers out of the market. Physicians will leave or reduce practices. Hospital and nursing homes will eventually close. When these facilities go out of business where will I get care?
    Maggie, you cite other countries where spending on healthcare is less. But you fail to address what kind of healthcare is available in those countries. Is it of the same quality of care or at least equal to or better than the health care provided in the United States? I know that sometimes unnecessary test, treatments, drugs, and technology are being used. I also agree that technology has not always proven its worth (and should) and drug companies need to have better guidelines and cost restraints. But I had rather trust my physician’s knowledge about what is best for me than putting it in the government’s hands.
    I totally agree that healthcare reform is needed but I am not sure the type of reform that is needed has been achieved at this point in time.

  6. Sharon:
    Throughout my post you will find links to evidence.

    You write “You attack Romney for stating that we can expect another $2,500 cost when he has no evidence. Where is your evidence that this will not happen?”

    First, it is impossible to provide evidence that something will not happen. Secondly, Romney was wrong when he said that premiums have already gone up by $2500. This undermines his credibility, calling his predictions into question.

    You write: “What difference does it make if healthcare spending is slowing? It continues to increase at some rate every year and adds to the rising costs/debt”

    It makes all of the difference in the world. Of course the cost of healthcare (like the cost of everything else) is likely to creep up each year. The questions is this: is it rising faster than GDP growth? If it is, then soon we won’t have enough money for anything else– education, the environment, etc. The goal is to bring down the growth of healthcare spending so that it is growing no faster than GDP.

    You write “You claim later that President Obama will increase taxes to cover the costs. What difference does it make if you take my money in insurance premiums or taxes.”

    Sharon, do you make more than $200,000 a year? Probably not. Obama is raising takes on individuals who make over $200,000 to help pay for reform. In the future, he may raise taxes on those earning over $150,000. He won’t be raising taxes on nuirses.
    Why raise taxes on the wealthy? Because they are paying
    much lower tax rates than in the past, and as a result, the gaps between the rich, the upper-middle class, the middle-class, and the poor are widening. This is bad for the economy and for society.
    Moreover, the government needs more $ to do some of the things that most of us want: repair bridges and roads,
    address global warming, improve public education (smaller classes, maintain school buildings), and most importantly, create public sector jobs.
    You write: “Maggie, you cite other countries where spending on healthcare is less. But you fail to address what kind of healthcare is available in those countries. Is it of the same quality of care or at least equal to or better than the health care provided in the United States? ”
    Sharon: I and others have written many times about the comparisons: by and large, care in other developed countries is at least as good, often better than in the U.S.
    Just Google: “U.S.” and “healthcare” and “international comparisons.”
    Patient satisfaction also is higher in other countries.
    Finally, you write “Much of the cost of Medicaid is assumed by the individual states. Medicaid spending for the federal government may not significantly increase but we will break the states in the process . . ”
    It sounds as if you’ve been listening to the misinformation being spread by conservatives.
    In fact, “on average the Federal Govt pays 57% of Medicaid costs. ”
    Under Medicaid expansion, the Federal govt will pay 100% of the cost until 2019, 90% of the cost after that.

  7. I make more than 200,000 a year. Why should i pay for you? I already pay over 80,000 dollars in taxes a year. When will it be enough? Make you own money.