American Elephants

Back in May of 2009, President Barack Obama had a big health care announcement, flanked by the heads of several major health lobbying groups: The American Hospital Association, the American Medical Association, The Pharmaceutical Research and Manufacturers of America, the Medical Device manufacturers, and the health care worker unions.

The President announced:

T]hese groups are coming together to make an unprecedented commitment. Over the next 10 years — from 2010 to 2019 — they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.

The providers group said:

We will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate — saving $2 trillion or more. … To respond to this challenge, we are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health care system.

They are developing proposals about the way they might come up with a plan to cut the rate of growth of health care spending, but they don’t yet have a plan, or any idea how they could cut costs. But the cost curve was already heading down and had been for 7 years, slowing only when Democrats devised the Affordable Care Act.

Didn’t work out so well, health care costs rose by nearly 10 percent in the first quarter according to the Bureau of Economic Analysis. In 2013, costs rose only 2.4 percent.

“The rise in costs and rate of growth calls into question claims from supporters of the federal health care law, including President Obama, who claimed Obamacare would “bend the cost curve” and slow down the rate of growth in health care spending. Obama and Obamacare supporters have been trumpeting, for instance, their exceeding a goal of signing up nearly 8 million enrollees on health insurance plans by way of the laws provisions.

Over the longer term, what does track with the declining growth rate is the growth of Health Savings Accounts (HSAs), the growth in Health Reimbursement Accounts (HRAs) and the general trend toward higher deductibles. When health insurance was first offered during World War II, because wage controls prevented raises, companies offered health insurance as a way to attract workers. When health care is paid for entirely by insurance the incentive is to use more of it — and so it was. HSAs have a high deductible, but lower premiums, and the incentive is to use less of it. You don’t go see the doctor for a cold. And your savings can be rolled over tax-free from  year to year, and are there for future health care expenses.

HSAs were created by legislation in 2003. Participation in HSAs has been growing by double digits every year since than. They grew by 22% in 2012. There has been parallel growth in HRA plans, a similar plan offered by some large employers.

Republicans were inclined to wonder how Obama was going to make it all cost less while adding a huge government bureaucracy on top to administer it.

Charles Blahouse of the Mercatus Center says:

It is quite possible that the ACA is shaping up as the greatest act of fiscal irresponsibility ever committed by federal legislators. Nothing immediately comes to mind as comparable to it. …The ACA is a commitment to permanently subsidize comprehensive health insurance for millions who could not otherwise afford it, which the federal government has no viable plan to finance.