Biden Aims to Build on Obamacare’s Cost-Cutting Measures

In the decade-plus since it became law, the Affordable Care Act has helped slow the explosive growth in health spending. But the United States still spends about twice as much per capita as other wealthy nations.

That leaves President Joe Biden with an enormous health care challenge, beyond leading the country out of the pandemic: curbing health care cost increases that, economists warn, are unsustainable.

The political obstacles will be enormous. Biden faces a Republican Party that has spent the past decade trying to destroy the ACA. There also is a remote possibility that the U.S. Supreme Court will scrap Obamacare when it rules on a challenge to the law mounted by GOP state attorneys general, many legal experts say. And Biden will have to overcome the resistance of powerful medical and pharmaceutical interests that oppose price constraints.

“It’s like we’re running up the down escalator,” said Michael Miller, policy director of Community Catalyst, a Boston-based organization that advocates for universal health care.

Biden already has laid out some of the ways he hopes to stem health care costs, but most would require congressional approval.

He argues that a law creating a health insurance “public option,” a government-run plan available to all working-age adults, would inject more competition into the health care marketplace, leading to lower prices. He has promised to rein in drug prices, in part by getting Congress to remove the prohibition that prevents Medicare, the largest purchaser of medication, from negotiating prices with drug manufacturers.

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Biden also has pledged to aggressively use existing antitrust laws to stem the ever increasing consolidation of hospitals and physician practices, which he says lead to higher consumer prices.

And Biden wants Congress to eliminate surprise medical billing and increase transparency to help patients decipher often obtuse medical bills.

The president’s proposals would go beyond the provisions included in the ACA, which have helped slow the growth of health costs but still left the U.S. with health spending far out of line with the rest of the world.

“The ACA was the most significant legislative effort to address price that Congress ever undertook,” said Frederick Isasi, executive director of Families USA, a Washington, D.C.-based health policy organization that promotes accessible health care for all. “But it just wasn’t enough.”

‘Denting’ the Cost Curve

A popular catchphrase during and after enactment of the ACA was the idea of “bending the cost curve” in health care. Instead of reducing health care spending, the goal was to slow its growth.

The ACA has achieved that goal—sort of.

“It’s a little too early to say that the ACA has bent the cost curve. It’s just too soon,” said Melinda Beeuwkes Buntin, chair of the Department of Health Policy at the Vanderbilt School of Medicine. “But we can say we dented it.”

According to an analysis that Buntin and a colleague, John Graves, published in the journal Health Affairs last year, the average year-to-year growth in per capita health spending in the United States has declined under the ACA, falling to an average of 3.6% a year. That compares with average annual growth rates of 6.4% in the 1990s and 5.9% in the 2000s.

In 2010, actuaries at the federal Centers for Medicare and Medicaid Services projected that by 2020, health spending would gobble up 19.3% of all the country’s goods and services. The actual percentage ended up being 17.7%, $525.7 billion below what was predicted.

Analysts largely agree on the ways the ACA helped curb spending. One of the most obvious effects was the law’s reduction in the rates Medicare, the government health program for older Americans, pays medical providers. Proponents were able to sell that payment reduction to providers because the ACA promised to insure millions more Americans, meaning more patients.

Another way the ACA reduced spending was by dramatically changing commercial health insurance markets, particularly the markets for health insurance that people purchase themselves, as opposed to enrolling in coverage provided by their employers.

Prior to the ACA, that market was quite limited in size, with health insurers mainly competing for low-cost, young and healthy consumers. Insurers then either refused to cover people with chronic illnesses or charged them enormous premiums. As a result, many people went without insurance.

The ACA prohibited such practices. Carriers could no longer reject customers because of their preexisting health conditions or charge them higher rates. The law also required all plans to offer a comprehensive package of benefits and provided federal subsidies to help low- and moderate-income people purchase policies.

Those changes created competition in the individual health insurance market for the first time, which in many places has resulted in lower premiums, said Linda Blumberg, a health policy analyst at the Urban Institute, a left-leaning Washington, D.C., think tank.

“All these rules that were put in place made these markets operate in a way that was conducive to competition, which didn’t even exist before,” Blumberg said.

The rules gave insurance carriers an incentive to negotiate better reimbursement rates with medical providers, she said, so they could offer lower premiums to beat their rivals.

Even Medicaid expansion, which some critics argued would crush state budgets, seems to have had a beneficial effect on state spending.

So far, all but 12 states have opted to expand Medicaid eligibility to a broader swath of low-income adults, with the federal government picking up 90% of the costs, a portion significantly more than it pays in the traditional Medicaid program. Some ACA opponents feared that even paying the remaining 10% would be too much for states.

But studies show expansion has helped states save money by allowing them to leverage the higher federal match rate to pay for other state activities, such as direct payments to public hospitals or community mental health services. Medicaid expansion also has lowered what states spend on care for uninsured people.

However, some of the cost-reduction measures in the ACA haven’t panned out.

Too few carriers have elected to operate in some areas of the country, including many rural regions, depriving those communities of the advantages of competition. And despite the federal subsidies, premiums remain too high for many consumers. That is why Biden and congressional Democrats are pushing for more generous subsidies in the COVID-19 relief package now under consideration on Capitol Hill.

The additional subsidies and other related proposed changes could bring 1.3 million people into commercial insurance, the Congressional Budget Office has estimated, a further spur to competition in the market.

Another disappointment many health policy analysts point to is the work of the Center for Medicare and Medicaid Innovation, established by the ACA to develop models that would improve quality and that would result in cost savings.

“That has been going on for 11 years and hasn’t produced a whole lot,” said Dr. Robert Berenson, an internist, former member of the Medicare Payment Advisory Committee and a health policy fellow at the Urban Institute. The payment models produced underwhelming savings rather than game-changers. “It was basically let 1,000 blossoms bloom, but most of them just wilted.”

Health economists and policy analysts say the ACA isn’t solely responsible for the spending growth slowdown of the past decade. Other factors include the slow recovery from the Great Recession, which depressed spending generally; across-the-board spending cuts passed by Congress in 2011; unrelated cost-containment measures in Medicaid and Medicare; and the rise of high deductible health plans, which discourage people from going to the doctor.

“One can’t say that [all of the growth slowdown] is due to the ACA,” said Paul Van de Water, a health policy analyst at the progressive Center on Budget and Policy Priorities, but “the ACA contributed to that drop.”

Van de Water also noted that under the ACA, “health spending as a percentage of GDP dropped, despite the fact that more people were covered.”

Biden’s Plans

The heart of Biden’s health proposal is winning congressional approval for a Medicare-like public option. He argues that a public option would reduce health care spending by allowing the federal government to use its tremendous leverage to negotiate lower prices from hospitals and other health care providers. Two Democratic U.S. senators, Michael Bennet of Colorado and Tim Kaine of Virginia, last month filed legislation that would create a public option, first in areas with limited competition and then nationwide by 2025. But it’s unclear when the Biden administration will take on the issue, as it continues to focus on ending the pandemic.

Proponents of the public option argue it would force commercial carriers to lower their premiums if they don’t want to lose customers to the government’s new marketplace alternative.

But opponents doubt that hospitals and other medical providers would accept the reimbursement rates that the public plan would have to offer to achieve the competitive advantage proponents are counting on.

The American Hospital Association and other hospital industry groups are on record opposing a public option. In an analysis conducted two years ago, they claimed a public option like the one proposed by Biden would result in a loss of $800 billion in hospital revenue, damage patient access to health care and disrupt other parts of the health insurance market.

“This ill-conceived program would undermine access to care and threaten the ability of providers and clinicians to meet the needs of their patients,” Chip Kahn, CEO of the Federation of American Hospitals, said at the time. The hospital industry has not changed its view on the public option.

Opponents of a public option dispute the idea that increasing federal subsidies for private health insurance would entice many more people into entering the market. The Heritage Foundation, a conservative think tank, argues that cost isn’t the main reason those without health insurance don’t have it. They say that many people simply don’t see the benefit.

Some conservatives also say Biden’s plan to drop the Medicare prohibition against negotiating drug prices with manufacturers doesn’t address the biggest driver of prescription drug costs—the exorbitant pricing of single-sourced specialty drugs, particularly medications treating some cancers.

Doug Badger, a health policy expert at the Heritage Foundation, said Biden’s plan might discourage pharmaceutical companies from investing in research, thereby leaving needed treatments and cures undiscovered. He called it an irony that such a proposal is under discussion at time when pharmaceutical companies have in record time just created vaccines to combat the worst pandemic in a century.

“I don’t know why you’d want to mess with a model that has shown such dramatic results at a desperate time,” Badger said.

But Badger is on board with Biden’s aims to increase transparency in medical billing and stem the increasing consolidation of the health care industry, which Badger agreed is a major factor in high health costs in the United States. He also approved of bipartisan discussions in Congress to find ways to protect consumers from the high prices of some specialty drugs.

There also has been support from both sides of the aisle in Congress to stop the practice of surprise medical billing, which occurs when patients are unexpectedly hit with huge bills from out-of-network medical providers. So far, medical providers and insurance carriers have successfully lobbied against those measures.

Advocates are hopeful, however, that Biden’s focus on surprise medical billing could be enough to finally get the legislation over the hump.