Blast from the past:
washingtonpost.com
Obamacare has been unable to save money on U.S. health care
Megan McArdle
Given the high cost of the U.S. health-care system, it’s natural to assume there must be some easy way to make sizable cuts. After all, in 2022, the United States spent 16.6 percent of its gross domestic product on health care, while the next-highest spender, Germany, spent only 12.7 percent, according to figures from the Organization for Economic Cooperation and Development. It’s not as if Germans are dying in the streets for lack of care, so it seems obvious that we could cut at least one-quarter of our spending to no ill effect.
As the Affordable Care Act took shape almost 15 years ago, its architects started looking for those savings in earnest, pursuing various theories about where they might be found. Somewhat skeptically, I started calling this the hunt for a “ magic pot of money” that could be surgically excised without making anyone worse off.
All these years later, we still haven’t found the magic money pot.
This is not because people haven’t tried hard enough. Obamacare contained a lot of elements that were expected to realize significant cost savings while actually improving the quality of care.
Preventive care, it was hoped, could catch conditions early and forestall expensive emergency room visits. (It’s a lot cheaper to treat high blood pressure than a stroke.) Doctors and hospitals could be paid to keep patients healthy, rather than to perform expensive procedures. A government board somewhat akin to Britain’s National Institute for Health and Care Excellence could rigorously assess treatments for cost-effectiveness. An innovation center would experiment with new models of care to drive further reforms.
This innovation center, known as the Center for Medicare and Medicaid Innovation (CMMI), would run pilot projects aimed at reducing costs or improving the quality of care, saving the government roughly $2.8 billion in its first decade of operation, the Congressional Budget Office (CBO) estimated.
That’s not a huge sum in the context of overall health-care budgets — Medicare spent almost $750 billion in the 2022 fiscal year — but it was a move in the right direction, and it was taking place in the context of other reforms, including accountable care organizations (ACOs), that would nudge the health-care system toward higher quality and lower costs. Moreover, the savings would be cumulative, as would be CMMI’s expanding expertise at improving the health system.
Unfortunately, though, in its first decade, the CMMI ended up costing the government about $5.4 billion, and it is expected to cost another $1.3 billion by 2030. Nor is the CMMI the only initiative that failed in this way. In a June letter to Sen. Sheldon Whitehouse (D-R.I.), the CBO reported that “overall, the evidence about the effects of ACOs on Medicare spending is mixed.” Translated from Wonkese, this means it was hard to tell whether ACOs produced significant savings.
Preventive care turned out to cost more than it saved, in part because doctors may need to treat a lot of minor conditions to prevent one serious health crisis. Expanding the number of insured turns out to make emergency room visits rise, not fall, because newly insured people worry less about the cost. A program to reduce hospital readmissions among Medicare patients may have killed thousands, as hospitals tried to avoid admitting patients who might trigger a readmission penalty. A plan to promote new insurance co-ops, a kind of voluntary public option, saw almost all of them fail within six years.
This is not to say that all the Obamacare programs were worthless. (Okay, the one that may have killed people was bad.) But part of innovating is risking failure. What this demonstrates is how hard it is to actually change the system in ways that generate major savings.
It’s not that we don’t know ways to save money. The system could be run more efficiently by reducing slack, but this would make people wait longer for many tests and treatments, as Canadians and Brits do. Doctor salaries, which averaged $316,000 in 2021, could be trimmed to the levels of German doctors ($183,000) or those in Britain ($138,000). The government could mandate lower drug prices, which would result in Americans losing access to medicines that aren’t worth making at the mandated price, as well as many that aren’t yet developed.
The problem is that these savings aren’t free. Nor are many other potential savings that space prevents me from naming, and that you are perhaps even now preparing to shoot me an email about.
The savings come attached to significant other costs, making them too politically expensive to contemplate. Try to cut doctors’ salaries almost in half, and they will freak out. Tell everyone else that they can’t have the fancy new drug they just read about, or that they have to wait half a year to see a specialist, and they will freak out, too. Politicians know this and won’t take the risk. Which is why the wonks hunting for magic pots of money have mostly turned out to be chasing rainbows.
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