Obamacare Should Make Health Care Cheaper—Just Not Right Away

Carmen Barnhardt performs an eye test on a child at a Care Harbor LA free health clinic for the uninsured and underinsured Photograph by Patrick T. Fallon/Bloomberg

This week, the Society of Actuaries threw a wrench into President Obama’s persistent assertions that his health-care overhaul is driving down the cost of health care. The nonpartisan professional association for insurance assessors came out with a report saying that medical claims—the biggest driver of premiums—will rise 32 percent (PDF) over the next three years because of Obamacare. In states such as Ohio and Wisconsin, the group expects the cost of claims to go up by 80 percent.

The study predicts that as states set up health insurance exchanges, people who are currently insured through state-sponsored high-risk pools will move into the private market, raising rates for everyone else. Many sicker people with employer-sponsored insurance are also likely move into the individual market because their employers will decide to drop higher-risk plans, preferring to pay a penalty rather than provide insurance.

The Society of Actuaries says that, at least in the short term, the cost of so many sick people entering the health-care market will more than offset the savings from the millions of healthy people who will enter it. This is the exact opposite of the argument the administration has been making.

This prediction—and recent assessments from the insurance industry—are causing the administration to tone town its optimistic rhetoric for the first time. This week Health and Human Services Secretary Kathleen Sebelius acknowledged that the promise of lower costs may not pan out, at least initially. She told reporters that some men and younger people could see their rates increase next year as key tenets of the law go into effect.

Some states already dispute the study, arguing that it doesn’t take into account additional Obamacare provisions that will do much to decrease spending. One example is the value-based purchasing program, in which Medicare reimburses hospitals for keeping patients healthy, as opposed to the fee-for-service model that has driven up the cost of care. (Researchers have argued that the rewards and penalties in pay-for-performance, which I wrote about last year, are too small to have much influence on provider behavior.)

Henry Aaron, a health-care expert at the Brookings Institution who supports the law, says it is obvious that health-care spending by government and insurance companies will rise initially, even if it’s not politically expedient to say so. For one thing, as more people get coverage, more claims will need to be paid out. Moreover, health-care costs continue to rise, even if the pace of spending has slowed. And Obamacare forces many people to get more complete—and therefore more expensive—coverage than they get now.

Over time, Aaron says, medical care should get cheaper. “There is a lot of room to improve health-care delivery, to bring down prices without undue loss of quality, and to encourage research into cost-reducing technology,” he says. “The major obstacle will be the first couple of years of implementation. I worry a lot about that.  If we get by that period, I am very optimistic. We will reduce the growth of spending, but anyone who claims to know the timing is blowing smoke.”

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