Obamacare

Kathleen Sebelius Would Like You to Believe That ObamaCare Is Responsible For Health Care Cost Savings

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In a Washington Post op-ed titled "The Affordable Care Act, helping Americans curb costs," Health and Human Services Secretary Kathleen Sebelius touts ObamaCare's alleged cost-control provisions, noting that "one of the major reasons we passed the Affordable Care Act was to bring down costs."

Sebelius highlights two of the law's insurance regulations: a medical loss ratio (MLR) rule that requires insurers spend at least 80 percent of premium revenue on clinical services and a rate-review provision which gives her agency the power to deem health insurance rate hikes "unreasonable." These two regulations, which substantially increase the federal government's power and discretion over the entire health insurance market, are "putting consumers back in charge." (Maybe she meant bureaucrats rather than consumers?)

You'll notice, however, that there's something missing from the op-ed: any mention of actual health insurance premium prices. That's not particularly surprising, I suppose, given that the premise of the piece is that the law helps make health care cheaper, yet since the law passed, family health insurance premiums have risen substantially faster than in the years before the law went into effect, rising nine percent following several years of three to five percent rises. 

But what about those shiny new insurance regulations Sebelius mentions? Aren't they supposed to have an effect on the cost of care? Given the state-level history with similar rules, I wouldn't count on it. Prior to ObamaCare, 34 states had some sort of MLR rule in place. But they didn't contain health spending or improve care. According to a 2009 American Academy of Actuaries report, "minimum loss ratios do not help contain health care spending growth…or address directly the quality and efficiency of health care services." If anything, MLR rules create an incentive for insurers to increase premiums by limiting the amount of money that can be spent on administrative costs and profits to a percentage of the total premium: Want more money to spend on administrative expenses? Higher premiums are the only way to go. Insurance rate review—essentially an explicit form of price controls—mostly served to make a mess of the Massachusetts insurance market when the state rejected 90 percent of proposed hikes in 2010.

But those two rules aren't the only supposed savings tricks Sebelius has up her sleeve:

The law emphasizes prevention because we know it is far less expensive to prevent disease than to treat it. Under the Affordable Care Act, many preventive services are available without cost-sharing so patients avoid chronic conditions and the painful and costly complications they often lead to.

Sebelius has tried this line before, but the research disagrees with her claim. According to a 2008 metastudy published in The New England Journal of Medicine, the "vast majority" of preventive measures don't save money. The Congressional Budget Office, meanwhile, has reported that in fact, government-funded prevention efforts can actually cost more money overall because they don't have any effective way to target only the narrow slices of the population for whom prevention might actually create savings.

Before ObamaCare was passed, President Obama declared that it would lower the cost family insurance premiums by an average of $2,500. Perhaps understandably, the administration tends not to mention that particular promise anymore, preferring vague pitches that suggest the possibility of savings without pointing to any real numbers about the health insurance market. The possibility of savings is all they really have. And they don't even really have that, because the evidence suggests that the policies the administration is counting on to produce those savings probably won't have the desired effect. 

Previously in "Kathleen Sebelius is wrong about ObamaCare."