Is Obamacare Cutting Health Tab?


By Jay MacDonald for

Maybe it was coincidence. Or, sunspots. Or, an unexpected outbreak of wellness across the land.

Whatever the underlying cause, new federal data unveiled last week confirm that U.S. health care spending's share of the overall economy fell in 2012 for the first time since 1997.

While experts are puzzled over exactly why, no one is ruling out the possibility that President Barack Obama's landmark Affordable Care Act may already be having a gentle braking effect on runaway health care spending.

Slower growth in health spending

The new data, published in Health Affairs, shows that health care spending grew by 3.7 percent in 2012, about one percentage point slower than the rest of the economy, dropping its share of gross domestic product from 17.3 percent to 17.2 percent from the previous year.

Health care spending growth has been running below 4 percent annually since the economy tanked in 2009. That's consistent with the historic response to economic recessions.

The question posed by the latest numbers is whether this anomalous downtick only reflects a continued response to the Great Recession, or whether there's a fundamental sea change afoot in the health care and health insurance industries.

"There are two explanations," says Harvard University economist and former Obama health care adviser David Cutler. "One is the recession was a big and drunken episode that has a very long hangover. The alternative view is that something big has actually changed."

Is Obamacare the reason?

That "something big," of course, is exactly what the Obama administration is shooting for with the Affordable Care Act. The nonpartisan Congressional Budget Office expects Obamacare to save the federal government more than $700 billion in the next decade.

While the feds estimate that health care reform has had a "minimal" effect on overall health cost containment so far, its impact is expected to grow significantly with the economic recovery. The Kaiser Family Foundation estimates that the various initiatives of Obamacare together may already be contributing upwards of 25 percent to containing health care costs.

"That's real change in the health system," says senior Kaiser adviser Larry Levitt.

In Cutler's view, the CBO may actually be underestimating the potential boon from Obamacare because its estimates are based on health spending growth returning to its previous skyward trend once the economy recovers. If the recovery remains slow and Obamacare does its job, he predicts a savings to the economy of $750 billion in the next 10 years.

Follow me on Twitter @omnisaurus.

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This article appears in: Personal Finance , Insurance , Economy , US Markets

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