Bush’s signature legislative achievement did more to rein in costs and fix our broken system than Obamacare ever could.
The struggles faced by Presidents Obama and Trump since the passage of the Affordable Care Act have created the impression that it’s impossible to successfully reform American health care. On the non-group market, premiums have soared, networks have narrowed, individuals have refused to enroll, and insurers have fled the marketplace. But despite the dysfunction of the market that was the primary focus of the ACA’s reforms, employer-provided coverage and the Medicare program have never been in better shape. Under those arrangements, which cover the majority of Americans, spending growth has abated, quality of care is improving, and premiums are rising at the slowest rate in recent memory. President Obama tried to claim credit for these trends, but they actually date to 2003, when President Bush pushed his own signature legislative achievement, the Medicare Modernization Act, through Congress.
After years of insisting that all was going according to plan, Democrats are finally admitting that the post-ACA individual market is not in good health. Average premiums increased by 105 percent from 2013 to 2017, and only 12 million Americans have enrolled in the exchanges. To remedy this situation, liberals are now contemplating a single-payer government takeover of private insurance, which would displace the employer plans that currently cover 150 million Americans. But employer-based plans are thriving, with average premiums increasing by under 3 percent last year, while Medicare beneficiaries are voting with their feet to leave the government-managed plan for competing private alternatives.
The recent slowdown in the growth of health-care spending has been most noticeable in Medicare costs and premiums for employer-based plans — not coincidentally, the two parts of the system least altered by the ACA. Nor is it any coincidence that the growth of costs began its decline in 2003, when MMA overhauled Medicare and revolutionized the structure of employer-provided plans.
President Bush was vilified by conservatives for the immediate expense of the Part D drug benefit included in the MMA, but this ended up costing 50 percent less than the CBO initially estimated it would. In fact, a recent analysis found that, by providing incentives for beneficiaries to switch to cheaper generic drugs where appropriate, Part D has accounted for 60 percent of the total slowdown in Medicare costs since 2011. And Part D aside, the MMA has been remarkably successful in achieving its primary aim: a broader structural transformation of Medicare.
Medicare has traditionally paid hospitals and physicians according to the volume of services they deliver, rather than for managing the overall health of patients for which they are responsible. As a result, reimbursement rates have been hard-wired into regulation, leading to over-payment, the over-provision of many low-value services, and the under-provision of innovative and cost-saving services that cut across payment silos. Because Medicare spending is so substantial, the program’s payment arrangements shape the entire health-care-delivery system, meaning its dysfunctions are imposed on those not enrolled in the program, too.
The Obama administration credited Accountable Care Organizations established by the ACA with helping to slow the growth of health-care costs, but ACOs remain fundamentally bound by the limitations of Medicare’s traditional fee-for-service benefit structure and generated only $0.47 billion in savings in 2015 — 0.01 percent of all U.S health-care spending.
However, the availability of privately managed Medicare Advantage plans offers a genuine alternative to politically micromanaged care delivery, and such plans have begun to revolutionize the Medicare program. Medicare Advantage delivers the same package of benefits with a higher quality of care for an average of $1,200 less per beneficiary than the government could directly. Plans can then use these savings to attract enrollees by filling in cost-sharing gaps and providing supplemental dental, vision, or hearing coverage that is not part of the standard benefit.
Options for Medicare beneficiaries to choose privately managed HMO coverage were established in the early 1980s and expanded to PPOs and fee-for-service plans by the 1997 Balanced Budget Act. Unfortunately, the BBA drove payments below the costs of delivering the standard Medicare benefit package in many areas, and so enrollment declined by 23 percent in the years following its enactment. By solving that problem, the MMA caused enrollment to soar from 5.3 million in 2003 to 17.6 million in 2016 — a trend that continued despite payments’ being trimmed back by the ACA.
Almost a third of Medicare beneficiaries — and a majority of those without Medicaid or employer-funded supplemental coverage — now choose to receive comprehensive coverage from private plans. By mitigating the dysfunctions that Medicare imposes on the health-care-delivery system, MA’s growth has even been shown to reduce hospital costs for commercially insured younger populations that aren’t covered by Medicare.
The MMA also initiated a revolution in employer-based coverage, by extending the tax deductibility of health insurance to out-of-pocket spending from the Health Savings Accounts of those enrolled in high-deductible plans. This provision helped correct a long-standing bias in the tax code, which had caused third-party (i.e. insurer) management of health-care spending to displace direct consumer control. It was projected to cost only $6 billion in lost federal revenue from 2004 to 2013, but it has had a huge impact.
The proportion of employees enrolled in plans with deductibles above $1,000 increased from 10 percent in 2006 to 51 percent in 2016, while the share receiving payments into private accounts to help cover out-of-pocket expenses increased from 4 percent to 29 percent over the same period. A recent NBER analysis credited the diffusion of high-deductible plans as the primary factor in slowing the growth of health-care spending.
There has been an enormous amount of hype and controversy surrounding Obamacare, but the MMA has done more to transform American health care — succeeding wonderfully in its core goals. As policy-makers look for ways to repeal and replace the ACA, they would do well to remember what President Bush accomplished by increasing competition, giving consumers more control, and moving away from the micromanaged care delivery of a single-payer monopoly.
This piece originally appeared on National Review Online
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Christopher Pope is a senior fellow at the Manhattan Institute.
This piece originally appeared in National Review Online