Health Care Costs Grow Dramatically Slower Than Expected After Obamacare

A new report by the Urban Institute analyzing government projections in U.S. health care spending shows that it is growing at even slower rates than what was originally projected with the passage of Affordable Care Act. The study predicts that the U.S. will spend $2.6 trillion less on health care between 2014-2019 than what was initially anticipated when Obamacare was passed in 2010.

“Health care costs have had several years of really historic low spending during the period, so overall, public programs, private spending is all less than we thought it would be,” said Gary Claxton, vice president at the Kaiser Family Foundation. “Each year we see spending going up 3 percent, 2 percent, whatever, and not 5 percent, and because that stuff compounds, when it continues to go up more slowly … it starts to really add up.”

The study, released Monday, compares what the government anticipates the country will spend on health care through 2019 in its forecast released in 2015 versus what was expected through that period in 2010. The more recent forecast numbers take into account the actual spending from 2013, as well as the legislation passed by Congress in 2015 to permanently fix a major gap in Medicare funding. They also reflect how sequestration, the stunted economic recovery and a Supreme Court ruling that made Medicaid expansion optional for states affected overall health care spending.

The latest projections predict U.S. health care spending for the years 2014-2019 will be 11 percent less than what was projected just after the passage of the ACA. The 2015 numbers suggest an increase of $49 billion in health care spending — including private health insurance, out-of–pocket spending, and other health spending — than what was predicted the year before, but spending on Medicaid is now projected to be $123 billion less than what was expected in 2014.

“Despite the modest increase in projected national health spending since the 2014 forecast, however, the 2015 forecast still reflects a decline of $2.6 trillion from 2014 to 2019 compared with the 2010 ACA baseline forecast,” the report said.

The report goes on to break down the projections by programs — such as Medicaid, Medicare and other federal programs — as well as by private insurance and out-of-pocket costs.

In each of the breakdowns, it suggests other factors not foreseen in 2010 that could have contributed to a growth rate slower than anticipated. Projections for Medicaid spending are down because of the 2012 Supreme Court decision that allowed states not to expand their programs under the ACA, while the 2011 Budget Control Act — which mandated a 2 percent reduction in Medicare payments — may be tamping down that program’s spending growth.

“There’s lots of things, and you can’t ever really disentangle them,” Claxton said.

But the report still posits that the ACA could be helping to flatten the spending curve in unexpected ways, including the effect certain Medicare regulations have had on other payers, and how premiums in Obamacare exchanges were lower in their first few years than predicted.

The question now is whether the projections of growth will continue to get lower, or if it a certain point, spending will return to the growth rates before the ACA.

“Are we going to go up again and how high? We will still have saved a whole bunch of money,” Claxton said. “If we stay at low growth rates and this continues, then this sort of difference between what was projected and what is occurring will grow wider and wider over time.”