The Affordable Care Act Contains Plans To Reduce The Growth In Health Care Costs

Posted on


The debate over the budgetary impact of the Affordable Care Act quickly became polarized between Democrats, who said that Congress should rely on the Congressional Budget Office’s scoring of the legislation, and critics who for reasons that were never made clear to me said it made sense to initiate a one-time exception to the rule and assert without argument that the CBO is wrong. Lost in this argument were assertions from the other side that the CBO was being too pessimistic. But there’s a decent argument that they were.

The basic shape of things is that the CBO was only willing to score crude quantitative means of reducing health care costs. If you cut a spending formula, the CBO will score that as a saving. If you tax certain kinds of insurance plans, the CBO will score a reduction in demand for those plans. But the CBO refused the score the idea that certain incentive programs and pilot initiatives would actually drive more efficient organization of health care. That, however, is a scoring rule they adopted, it’s not a claim that it’s impossible to provide health care more efficiently. And you can’t deny that there are an awful lot of initiatives tucked here and there in the Affordable Care Act that are intended to do this. The CBO didn’t want to score them, but they are in there, and they were put in there by smart people who believe they’ll work.

Some of those smart people—David M. Cutler, Karen Davis, and Kristof Stremikis—did a paper on this for CAP back in May of 2010. Here’s a taste:

Other estimates, however, suggest that an aggressive approach to health care modernization could result in significantly greater cost reductions. Beeuwkes-Buntin and Cutler estimated a 1.5-percentage-point reduction in cost increases annually from significant health care reform, or more than $700 billion in the 10-year window. These savings would come from two primary sources. First, administrative expenses incurred by provider groups would decline as electronic medical records, and incentives to use them appropriately, are widely disseminated. The potential for administrative savings has been stressed by both provider groups and insurers, and they are distinct from the reduction in insurance administration noted above. Second, reform would lead to fewer and less-costly acute care episodes. Potentially substantial savings could be had by preventing certain illnesses from recurring through better coordination of care and by rationalizing what is done when a person becomes sick by bundling payments, paying more for quality care, and sharing savings with accountable provider organizations.

Similarly, Hussey, Eibner, Ridgely et al. estimate that savings of more than 10 percent are possible, largely from payment reforms like bundled-payment systems. Realizing these savings over a decade implies cost reductions of nearly 1.5 percentage points annually. A more conservative mid-range set of assumptions suggests that such reforms could reduce growth in national health expenditures by about one percentage point per year.

Now maybe you think Cutler, et. al. are wrong about this. Indeed, maybe time will show that they are wrong. But it’s mistaken to argue that progressives have no vision for further controlling the growth in health care costs. The belief is that some of this stuff will pan out. And the hope is that once we see what’s panning out, we’ll have a better idea of how to build on the successes. That’s the plan.