The Health-Care Spending Claim That Made Obamacare Possible Was a Lie

Health care costs were slowing before the passage of Obamacare.

One of the key arguments that President Obama used to get his health care law though Congress, control of soaring health care costs, turns out to have been bogus.

Here is the way Obama put the argument in a September 9, 2009, speech about health care to a joint session of Congress:

Then there's the problem of rising cost….insurance premiums have gone up three times faster than wages….our health care system is placing an unsustainable burden on taxpayers.  When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined….

Now, these are the facts. Nobody disputes them.  

Obama's voice saying "these are the facts. Nobody disputes them," is almost enough to set off sound effects akin to those that accompany Pinocchio's growing nose in the Disney movie.

Sure enough, now that the data are in, the emerging consensus is that health care costs, rather than "skyrocketing," have been moderating, even flat-lining. And they were beginning to do so well before Congress passed ObamaCare in March 2010.

There have been a trickling of academic papers and journal articles tracking the trend, but the news hasn't really yet made it fully into the political discussion.

A January 2012 article in the journal Health Affairs reported that "U.S. health spending grew more slowly in 2009 and 2010—at rates of 3.8 percent and 3.9 percent, respectively—than in any other years during the fifty-one-year history of the National Health Expenditure Accounts." That article, by economists and statisticians who work for the Centers for Medicare and Medicaid Services, says, rather than controlling costs, ObamaCare actually increased health spending by one or two tenths of a percentage point in 2010. Overall, though, the law's effect in 2010 was less important than were things like "the loss of patent protection for certain brand-name drugs" and "a continuing increase in the use of generic medications," i.e., those $4 generics at Walmart.

"Slower Growth In Medicare Spending—Is This the New Normal?" was the headline on one article published in March 2012 in the New England Journal of Medicine. That discussed a series of factors. The economic downturn meant some hospitals delayed or canceled construction projects because of "tight credit markets and shrinking endowments." Demographically, the Baby Boomers just becoming eligible for Medicare are "young elderly" who tend to be healthier and require less costly care. This article also mentions two Bush-era laws: "The Deficit Reduction Act of 2005 reduced payment rates for imaging, home health services, and durable medical equipment, and the Medicare Improvements for Patients and Providers Act of 2008 made substantial cuts to Medicare Advantage plans."

Another New England Journal of Medicine article, from August 2, 2012, reported what it called a "marked slowdown in spending growth." That article says that "Between 2000 and 2005, Medicare spending per enrollee grew about 7.2% annually, as compared with 9.1% growth among private payers. Between 2006 and 2010, however, growth in Medicare spending per enrollee slowed to 4.2% annually, as compared with 4.5% among private payers." The article says growth of Medicaid spending per enrollee "was relatively slow (less than 3% per year) throughout the past decade." Among the causes, the authors speculate, were "lower growth rates for prescription-drug spending" in part because of "the increased substitution of generics for brand-name drugs."

According to the National Health Expenditure Accounts maintained by the Department of Health and Human Services, health care spending was about 14 percent of GDP from 1997 to 2001, then grew to about 16 percent from 2003 to 2007. In 2009 and 2010 it was at 17.9 percent. After just about doubling to $2.4 trillion from $1.2 trillion in the decade between 1998 and 2008, health care spending was about $2.5 trillion in 2009 and about $2.6 trillion in 2010.

The man who was President Obama's White House budget director, Peter Orszag, weighed in last week from his new perch in the private sector with a column acknowledging that "The rising cost of health care in the U.S. has been slowing over the past few years."

"Slowing," not "skyrocketing," got that? Now he tells us. In an email to me, Orszag tried to credit both President Obama's stimulus spending on electronic health records and the ObamaCare law for the slowdown. But his timing and his logic are both off base.

Republicans who opposed ObamaCare in the first place can use these new facts as part of an argument for repeal. The "skyrocketing" costs that the president used to sell the law were already slowing without the new law. But in pushing their own health-care reform agenda to replace ObamaCare, Republicans will have to be careful not to repeat the president's mistake. Even markets with huge government involvement, like health care in America, sometimes have ways of self-correcting.