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White House Economist: Lower Health Costs Benefit Economy

Jason Furman

Jason Furman (A. Kotok)

2 April 2015. President Obama’s chief economic adviser said lower health care costs since passage of the Affordable Care Act in 2010 are benefiting the overall U.S. economy and lowering Federal deficits. Jason Furman, who chairs the president’s Council of Economic Advisers, made his remarks today in a briefing at Center for American Progress, a progressive think tank in Washington, D.C.

Furman said since the Affordable Care Act, or ACA, passed in 2010, the rate of annual increase in health care inflation dropped to its lowest level in 50 years. That rate, in 2014, registered at 1.7 percent, compared to 3 to 4 percent annual increases from 2000 to 2010 that often far exceeded the overall rate of inflation.

When measured in terms of costs to families, health care costs are also dropping dramatically. Costs per enrollee of private insurance, said Furman, grew at a rate of 1.4 percent from 2010 to 2013, compared with 4 to 5 percent annual growth rates in 2000 to 2010. Costs of Medicare premiums actually fell, by 1 percent from 2010 to 2013. From 2000 to 2010, Medicare premiums rose at annual rates of 2 to 6 percent. Overall, said Fruman, the years 2011, 2012, and 2013 saw the slowest growth in real per capita national health expenditures ever recorded.

The low growth in health care costs, noted Furman, is having a significant impact on U.S. federal budget deficits. Citing Congressional Budget Office data, Furman said savings in lower health care costs are reducing deficit projections by more than the $1 trillion originally estimated for the years 2011 to 2020, adding another $200 billion to that amount. CBO also estimates that the savings would grow over the following decade, eventually coming to $1.6 trillion.

Furman said many variables contribute to the decline in health care costs, and not all  factors — such as lingering effects of the 2007-2009 recession — are attributable to ACA. However, increases in health care quality called for in the ACA, such as lower hospital readmission rates, and a 17 percent reduction in hospital-acquired conditions (equivalent to 50,000 avoided deaths) are contributing to lower health care costs. More savings can be expected as alternative reimbursement models that pay for performance — e.g., bundled payments and accountable  care organizations — rather than charging fees for individual services expand through the system.

Other systemic changes in health care delivery and finance, Furman pointed out, could cut into those savings, such as one-time increases in pharmaceutical prices, as seen recently with new hepatitis drugs. Rising deductibles for health care coverage that reduce premiums but increase out-of-pocket costs, can likewise limit the benefits of lower costs for individuals.

More jobs, less job lock

Furman listed a number of other beneficial economic impacts of ACA. Some 16.4 million people gained insurance coverage since the end of 2013 because of ACA, in addition to people age 19 to 26 who could be covered by their parents’ health insurance before 2014. As a result, the rate of uninsured people in the U.S. dropped sharply after 2010, to about 10 percent now.

Having health insurance, noted Furman, results in healthier and more productive workers. And it reduces the number of people locked into bad jobs because of the need for coverage, a phenomenon called job lock. He cited early evidence that shows reducing job lock among young adults can lead to higher earnings later on.

Opponents of the ACA often call the law a “job killer,” but Furman said ACA is having just the opposite effect, at least in the health care sector. Increasing demand for health care services, said Furman, resulted in the creation of 130,000 new jobs as of February 2015, according to the Council’s estimates.

In response to a question from Science & Enterprise about a report from PriceWaterhouseCoopers indicating 90 new companies were formed as a result of the ACA, Furman called the report “exciting” and noted that before the bill was passed, innovations in health care usually meant greater costs for the system and higher insurance premiums for families. Innovation now, he said, brings in developments such as advances in information technology to improve quality and lower costs.

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