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State of the Union 101: Has Obamacare really slowed rise of health costs?

The president's State of the Union claim that Obamacare has slowed the rise of health costs misses the fact that key provisions don't kick in until 2014 and that slower spending is related to a weak economy.

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President Obama gives his State of the Union address during a joint session of Congress in Washington on Tuesday night.

Charles Dharapak/AP

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In his State of the Union message Tuesday, President Obama said, “Already, the Affordable Care Act is helping to slow the growth of health-care costs.”

He didn’t dwell on the point. Members of his own party applauded, and he moved on to talk about the need for further steps to tame health-care costs.

But it’s worth a pause, because the claim is controversial. Is it true?

First, it is true that the pace of medical cost increases has slowed. The real question is why things have changed and whether the trend will last.

Beyond that, it’s worth noting that the slowing of medical inflation doesn’t mean the problem has gone away, as Mr. Obama himself allowed during his speech.

Whereas private-employer insurance had often seen double-digit annual increases, that hasn’t happened since 2004, according to the Kaiser Family Foundation, which tracks the issue.

Health insurance premiums offered as an employer benefit, the foundation says, rose a cumulative 51 percent during the five years before the recession. By contrast, the five years from 2007 through 2012 saw a 30 percent cumulative increase – including a rise of just 4 percent last year.

Government data find a similar pattern.

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Kathleen Sebelius, secretary of Health and Human Services, wrote in a January blog post that in 2011 “the overall growth in health spending was at a historic low [of roughly 4 percent] for the third year in a row.” That tally wraps private-sector spending in with government programs like Medicare and Medicaid.

So … why?

Secretary Sebelius, like Obama, asserted that “the statistics show how the Affordable Care Act is already making a difference.”

A little problem: The ACA, also known as Obamacare, wasn’t passed until 2010, and the key portions of the law don’t take effect until 2014. Some of the provisions that took effect by 2011 may have added to health-care spending by making coverage more generous.

For her part, Sebelius elaborated by saying that the “net cost ratio” for individual health polices “declined, thanks in part to the new 80/20 rule, which requires insurers to spend at least 80 percent of premiums on health care or provide rebates to their customers.”

She also said the law has a rate review provision that “prevents insurance companies in all states from raising rates with no accountability or transparency.” The rate review policy didn’t start until 2011.

The Wall Street Journal, in an editorial on the subject, quoted government actuaries calling the law’s impact on health costs through 2011 “minimal.”

Drew Altman, president of the Kaiser Family Foundation, joins many other health-care analysts in saying that a weak economy is one big reason for slower-growing costs.

“No one has yet been able to disentangle the causes of the slowdown persuasively,” he wrote in September. “Health care use and the economy have always been closely tied, and my sense is that the recession and slow recovery are responsible for much of the recent health spending and premium trends.”

Increases in cost-sharing are probably important, too, he said. “In tough times, when wages are flat, people avoid using the health care system if they can. We also know that higher out-of-pocket costs deter utilization.”

He noted some other possible factors:

• The rise of “wellness” programs.

• Tighter forms of managed care by insurance providers.

• Grass-roots efforts to modify how private-sector care is delivered and paid for. “Employers, insurers, and providers have been organizing a range of efforts to reduce costs and improve quality,” Mr. Altman wrote.

Some good news, in a way, may be how little change in health costs so far is attributable to federal reforms, not how much. That may mean there's ample room for new policies, such as payment reforms in Medicare (to make fees based more on outcomes and less on how many procedures or tests are done) to achieve further gains, if Obama and Congress push down that road.

But health policy experts generally see the ACA as, at best, a start down the road toward meaningful cost controls.

And as for the recent slowdown in health costs, Altman concluded that there’s no guarantee that the recent trend will prove lasting.


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