ObamaCare’s Failed Cost Controls

Medical spending keeps rising, outpacing both general inflation and population growth

By Joseph R. Antos and James C. Capretta. Mr. Antos is a scholar in retirement and health policy at the American Enterprise Institute. Mr. Capretta is a resident fellow at AEI. Excerpts:

"ObamaCare is a failure. Costs are rising faster than before, and there’s no real prospect of a reversal. The key provisions of the law that were supposed to produce savings and efficiencies either haven’t worked or will never be implemented.

America’s health-care spending rose 4.3% in 2016, according to federal data released earlier this month. That is the third straight year it outpaced economic growth. Total health spending last year was 17.9% of gross domestic product, up from 17.2% in 2013.

Some defenders of the ACA claim the nation’s health-care spending has slowed since 2010. They compare the nominal growth rate before and after ObamaCare became law. Health spending grew at an average of 5.7% a year from 2003-10 and then slowed to 4.3% from 2010-16.

But this comparison of unadjusted nominal figures is misleading for two reasons. First, inflation has been low the past several years in the wake of the Great Recession. After adjusting for inflation, national health spending grew on average 2.6% a year from 2003-10, compared with 2.7% from 2010-16. Second, the population is growing less rapidly than in the past. A fair comparison would use per capita figures. Real national health spending per person rose on average 1.7% a year from 2003-10, compared with 1.9% from 2010-16.

What explains the law’s poor performance? To start, its signature cost-control provisions simply have not panned out. Accountable Care Organizations were supposed to give hospitals and doctors incentives to become more efficient and cut Medicare costs, but they have yet to produce any overall savings. In 2016 only 56% of the 432 ACOs hit their benchmarks for reducing costs. Even worse, after taking into account their bonus payments, ACOs actually increased Medicare spending, by $216 million in 2015 and $39 million in 2016.

ObamaCare also included a provision to penalize hospitals that have high rates of readmission within 30 days. This was supposed to cut costs, and hospitals have reduced readmissions. But new data shows that mortality rates have also increased, suggesting the policy may contribute each year to 5,400 premature deaths of Medicare patients with serious heart conditions. This is another instance of the unintended consequences when government meddles in the practice of medicine. Moreover, there is no evidence that the policy has reduced overall costs, because hospitals can provide other services to make up for lower readmissions."