The Purpose of This Bl;og

By and large, liberals are very decent, kind, and compassionate people who genuinely want what is best. This should be kept in mind as we explore the Law of Unintended Negative Consequences near invariably resulting from Leftist big-hearted solutions to societal problems.

Thursday, November 7, 2013

Obamacare - Reduced Healthcare Costs?

President Obama  has claimed, "We agree on reforms that will finally reduce the costs of health care...Now, I just want to repeat this because there's so much misinformation about the cost issue here.  You talk to every health care economist out there and they will tell you that whatever ideas are -- whatever ideas exist in terms of bending the cost curve and starting to reduce costs for families, businesses, and government, those elements are in this bill." (See HERE)

This claim, and many similar to it (see HERE), are not only dubious, but also a bit confusing because it is uncertain which costs exactly the President had in mind, and for whom he figured the costs would be reduced.

If he was referring to cutting the cost of insurance premiums and out-of-pocket expenses for those who are insured, then the President's claim is demonstrably false as shown in my previous article HERE.

If he was referring to cutting the cost of health care to the government, and ultimately reducing the burden on  tax-payers, then this will also be shown as demonstrably false in my articles on Obamacare and taxes and deficits.

However, since both the cost of premiums and governmental expenses are contingent upon the cost of health care products and services in general, it is reasonable to conclude that this is what the President had in mind.

Support for this conclusion can be found in Obama's promise to decrease the cost of prescription drugs (see HERE) as well as decrease the cost of health care by "improving the quality of our health care" and by reducing "waste and inefficiency." HERE

Either way, the general costs of health care products and services will be primarily what I will examine in this article.

These costs are key to the reoccurring debate over socialized medicine because the cost per person for health care in the U.S. tends to be "more than two-and-a-half times more than most developed nations in the world, including relatively rich European countries like France, Sweden and the United Kingdom." (See HERE, see also HERE and HERE)

This may be somewhat perplexing as well as alarming given that in the U.S. there are fewer physician and hospital beds and visits per person, and lower life expectancy at birth, than other developed countries. (ibid, see also HERE)

And, while this alarming disparity may be somewhat explained (see HERE and HERE), according to the report by the CMS (health care actuaries for the federal government), and contrary to President Obama's assertions, consumption expenses for personal health care have increased nationally each year, from $2.36 trillion in 2009, to $2.45 trillion in 2010, to $2.55 trillion in 2011. (See HERE) This equates to a per capita rate of $6,618 in 2008, $6,891 in 2009, $7,090 in 2010, and $7,326 in 2011. (ibid.)

This upward trend in health care costs has also been projected by the CMS to continue at an average rate of 5.8% through 2022. (See HERE)

The Obama administration and media have attempted to obscure these facts in several ways. First, by subtly changing the rhetoric from "reducing costs" to "reducing the growth in costs." (See HERE) This way they can claim that Obamacare is working because the rate of growth for personal health care consumption has declined each year--from 4.5% in 2009, to 4.1% in 2010, and 3.9% in 2011. (See HERE)

Unfortunately, this is misleading as well since the rate of cost growth has steadily declined from 2001 to 2011 (9.5%, 8.4%, 7.1%, 6.7%, 6.7%, 6.0%, 4.6%, 4.5%, 4.1%, 3.9%), some years before Obamacare was enacted. (See HERE)  In fact, as can be seen in the figures above, there were greater reductions in growth per year during the years previous to Obamacare.

Another obfuscation by the administration and the press has been to claim that CMS projections have been revised downward because of cost reductions due to Obamacare. (See HERE) This is debunked by an article in the National Review. (See also HERE and HERE)

So, regardless of the various spins, the LUNCs here are that health care costs have increased rather than decreased under Obamacare, and are projected to continue to increase over the next 10 years, and Obamacare has had little or no, if not the opposite, impact on slowing cost growth. (See HERE and HERE and HERE and HERE and HERE and HERE and HERE and  HERE and HERE and HERE)

[Update 6/22/2016: according to this article, U.S. will spend $2.6 trillion less on heath care than expected before Obamacare, Like mentioned above, this article contains some misleading suggestions. According to the study, "Actual health care expenditures aren't going to drop by $2.6 billion by 2019. In fact the study projected they will double from where they were in 2010 when Obamacare was instituted. The decrease in spending is the difference between the old projections and the new projections. However, you may wisely ask how the growth in spending can decline when health care cost and insurance premiums are rising, contrary to what we were promised by Obama? That's easy. Deductibles have also skyrocketed, thus making it decreasingly possible for people to afford to use their insurance and get care. In other words, even if you could keep your doctor and insurance plan as promised (yeah...right!), you may not be able to afford them. This is what liberals like to call "progressive."]

[Update 3/27/2014: here is an article on the True Story (and costs) of Obamacare.]

[Update 4/2/2014: Here is an article from July of 2013 about Obamacare Marketing Campaign to Cost Nearly $700 million. With the recent ad push in 2014, some may figure this number is low, particularly when adding in private insurance ads to those marketing schemes paid for by the government. And, given White House reports, on April Fools day of 2014, that Obamacare enrollment exceeded 7 million (see HERE), this means that at least $700 was spent in advertising per enrollee, making the customer acquisition costs relatively high--and this doesn't even include the more than $600 million it cost to set up and run the Obamacare web sites (see HERE)]

[Update 12/4/2015: Health Care Spending Grows at Fastest Rate in 7 Years]

[Update 12/6/2015: Spending and Overhead Costs Explode Under Obamacare, Official Report Shows]

Part of the reason that Obamacare has failed in its commitment to reduce cost, and doesn't live up to its name as the Affordable Care Act, is because it tends to treat the symptoms (such as decreasing the number of uninsured) and doesn't effectively address some of the core causes (like obesity--see HERE, and labor problems and over-use of expensive specialists--see HERE and HERE)

Also, Ken Langone explained to CNBC, "Insurance is fairly simple. It's spreading risk. It's sharing risk. You're not going to bring 35 million more people into the pool for care and say, 'We're going to do it cheaper.' We're living longer. The longer we live, the more health care we need.." (See HERE)

More important, "Obamacare does nothing to link doctors' fees to their performance and reduce health-care costs, the head of the Mayo Clinic told CNBC on Friday. 'The Affordable Care Act is basically insurance reform—eligibility and access—and basically, they are going to pay for that by reducing the reimbursement. It doesn't modernize how we drive to higher quality care,' Dr. John Noseworthy said." (See HERE)

Gary Wolfram, Professor of Economics and Public Policy and Director of Economics at Hillsdale College explains that, not only is Obamacare unsustainable, but one of the key reasons that Obamacare will cause health care cost to increase rather than decrease, is because it relies on third-party payment (the buyer doesn't pay, someone or something else pays), where consumers, or patients in this case, no longer ask "what does it cost or is it effective," which can't help but cause demand to get larger and larger and prices to go up. This occurs on the supply side as well. Once the health care producers knows that someone else is paying for their products, they don't have to convince patients that they want the products, they just have to convince congress that is should be covered. So, the health care providers may provide products that are really expensive but don't do much for the patient, but as long as Obamacare pays for it, the providers are good. "The incentives are all incorrect in this system." (See HERE)

Lower Cost of Prescription Drugs:

Since prescription drugs represent about 10% of health care costs nationwide (see HERE and HERE), and roughly 70% of the population use prescriptions drugs at some point during the year (see HERE), and given that per person drug costs are much higher in the U.S. than other developed countries in spite of the fact that "the average American takes fewer prescription medicines than people in France or Canada" (see HERE), it may prove beneficial to look briefly at this sizable aspect of the medical market.

In 2010, the Secretary of Health and Human Services, Kathleen Sebelius, in an article titled, "Seniors Already Seeing Lower Prescription Drug Costs," claimed: "The Affordable Care Act is working to help bring down the cost of prescription drugs for seniors enrolled in the Medicare Part D prescription drug program and today, we got more good news for our seniors." (See HERE) Yet, Sebelius went on to acknowledge: "This afternoon, the Centers for Medicare & Medicaid Services (CMS) announced that Medicare prescription drug plan premiums for 2011 will stay similar to rates beneficiaries are currently paying this year. The average premiums in 2010 were $29 per month -- in 2011 we expect average monthly premiums to be just a dollar more." (ibid)

So, in actuality the cost of prescription drugs went up, rather than down, in 2011, though Sebelius went on to predict that "people with Medicare will see big improvements in drug coverage next year. Under the Affordable Care Act, they will see lower prescription drug costs, if they fall into the coverage gap or 'donut hole.'  This year, people with Medicare who are in the donut hole are receiving one-time $250 rebate checks. Next year, they will receive 50% discounts on brand-name drugs and in each year their costs will be reduced even more until the donut hole is closed in 2020." (ibid)

I can't speak for other Medicare recipients, but my elderly mother never received the rebate check, and because Obamacare robbed Medicare of billions of dollars (see HERE and HERE and HERE), my mother will have to pay an additional $20 a month for the Part D portion of her Medicare advantage plan in 2014.

More to the point, the Medicare coverage gap mentioned above isn't a product of Obamacare, but rather the Medicare Modernization Act of 2003 (see HERE). In fact, the only relationship I could find that Obamacare has to the gap, is that it requires it be phased out by 2020. Thus, Sebelus' prediction misleadingly credits Obamacare with reduction in drug costs to which Obamacare will merely and eventually put to an end.

Be that as it may, in regards to all insurance plans, HealthPocket reports: "the Affordable Care Act (a.k.a. Obamacare) mandates that new qualified health plans provide prescription drug coverage as an Essential Health Benefit. However, which drugs are covered and at what cost is more vague....The Obamacare requirement to include drug coverage as a standard benefit will expand the population receiving insurance assistance with drug costs. In the existing individual and family health insurance market, nearly one out of five health plans do not include prescription drug coverage. However, consumers with existing drug coverage who enroll in Bronze or Silver plans will likely see their drug out-of-pocket costs increase assuming trends observed in public Obamacare rate filings persist." (See HERE)

So, essentially, the increased drug coverage through Obamacare creates the illusion of lower drug costs to enrollees, but in reality the costs are increased through larger deductibles.

One of the ways Obama proposed to lower drug cost was to "repeal a prohibition on Medicare negotiating directly with drug companies over prices for Medicare recipients." (See HERE and HERE) Obama has said he will "cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency.” (See HERE) However, nothing of the sort was included in the Affordable Care Act, nor is it currently being legislated. (ibid., see also HERE)

Another way that Obama proposed lowering drug cost was through what some critics are calling a "sweatheart deal for drug companies." (See HERE) "Last summer, the Obama Administration confirmed that it had come to an agreement with the pharmaceutical industry.  In closed door meetings, the industry pledged cost savings of $80 billion over the next 10 years.  In return, the administration agreed not to include overly burdensome regulations in healthcare reform legislation." (ibid.)

Yet, Duff Wilson, of the NYTimes, said: "Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years. In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992." (Quoted HERE)

Johnathan Cohan, of the New Republic, is reported as saying: "Put [all of the reform efforts] together, and you have more demand for name-brand drugs. As a result... pharmaceutical companies would be able to raise their prices--enough to boost revenue significantly: 'If this bill is implemented,' the [IMS Health] report concludes on page 138, 'an increase in prices on new drugs can be expected....revenues for the makers of name-brand drugs could grow by hundreds of billions of dollars over the next ten years.'" (Quoted HERE)

Finally, even though in 2012 prescription drug use and average spending per person declined for the first time in 58 years, nevertheless the cost of drugs increased. (See HERE and HERE and HERE)

And, experts don't attribute the decline in use to Obamacare, but rather to "positive trends such as more use of cheap generic pills and flukes such as a fairly mild cold and flu season in early 2012. But there also was a big negative: people rationing their own health care. IMS found affordability of health care remains a big problem for many Americans, with growing out-of-pocket costs forcing people to go without needed doctor visits, medicines and other treatments. (See HERE and HERE)

In other words, prescription drug use is down because of continued rise in costs of drugs and health care, no thanks to Obamacare.


The Leftist LUNC here is that Obamacare was supposed to decrease the cost of health care, particularly for prescription drugs, but the opposite has occurred. And, the rising costs will unavoidably hurt worse the poor and elderly for whom Obamacare was primarily designed to protect.

For an explanation as to why these Leftist LUNCs occur, please see: Gov: Wrong Tool for the Right Job - Introduction and Cold Nanny as well as The Politics of Compassion, Emotions, Ignorance, Denial, Blame-Shifting, and Victimization

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