The Medicare Trustees issued their annual report on the program’s long-term financing outlook last month, and their findings were greeted by the Obama administration as evidence that the Affordable Care Act is working. This is nonsense.
The general slowdown in health spending remains largely a phenomenon of economic conditions related to the deep recession of 2007-2009 and factors outside the realm of the ACA. Among other things, it is noteworthy that health spending growth rates have moderated across the developed world in recent years, as measured by the OECD. Even Obamacare’s most enthusiastic apologists might be sheepish about claiming the law somehow caused a global health transformation.
A close examination of the ACA’s provisions, especially those related to Medicare, also produces nothing that would lead one to expect large-scale spending moderation. The main provisions of the ACA provide substantial new subsidies for health insurance, through Medicaid and the federal and state exchanges. The Congressional Budget Office CBO estimates that these provisions will cost about $1.8 trillion over the period 2015 to 2024. The main effect of this massive increase in subsidization of insurance will be to increase demand for services and thus put upward pressure on prices and costs. This is simple economics. It may take some time for these pressures to emerge, but they will eventually emerge.