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Projected Health Spending Falling — Even with ACA’s Coverage Expansions

In its latest projections, the Congressional Budget Office (CBO) continues to estimate that federal health spending — including the costs of the Affordable Care Act (ACA), which has enabled 20 million Americans to get coverage — will be less than what it had projected in 2010 without the ACA.

Spending on the major federal health programs — Medicare, Medicaid, the Children’s Health Insurance Program, and marketplace subsidies — will be $632 billion less over 2011-2020 than CBO projected in January 2010, before the ACA’s enactment. (See figure.) Overall spending has fallen despite the ACA’s roughly $700 billion for expanded Medicaid and for premium tax credits and cost-sharing subsidies to buy marketplace coverage.

Health care cost growth has slowed significantly in recent years in both the public and private sectors, but particularly in Medicare. Spending per Medicare enrollee grew by 6.7 percent a year from 2000 to 2010, on average, but only by 1.3 percent a year from 2010 through 2015.

One factor is the ACA’s cuts in payments to Medicare providers and health plans. Another is the recession and slow recovery, which reduced demand for health care by weakening incomes.

The slowdown also partly reflects structural changes in the health care system, CBO and other experts have concluded. Hospitals, doctors, and their professional associations are taking steps to curb costly and ineffective procedures and treatments. Thus, while CBO projects that per capita cost growth in Medicare will rebound from the extremely low rate of recent years, it doesn’t expect it to return to its previous levels. Medicaid spending growth has similarly slowed, largely due to slower-than-expected growth in per-beneficiary costs.

The ACA itself has contributed to these structural changes by introducing incentives to improve efficiency and quality. “Although it remains unclear how much of this phenomenon can be attributed to the Affordable Care Act,” says the Commonwealth Fund, “it seems clear that payment and delivery system changes set in motion by the ACA have made a significant contribution to lower cost growth as well as improvements in care.”

To be sure, federal health spending — even if cost growth remains moderate — will keep rising as more baby boomers become eligible for Medicare and Medicaid. Making the U.S. health care system more efficient thus remains a major budget challenge. But CBO’s latest projections confirm that we’ve already made substantial progress.