NEJM: PPACA can help contain growth in healthcare costs

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The Patient Protection and Affordable Care Act (PPACA) will may not solve the country’s healthcare cost problems, but it is “a historic and cost-effective step in the right direction,” according to an editorial published online May 12 in the New England Journal of Medicine.

Jonathan Gruber, PhD, department of economics at the Massachusetts Institute of Technology, wrote that while it is certain that the PPACA will dramatically increase health insurance coverage, concerns have been raised about the act’s effect on healthcare costs—particularly with the publication of a report from the actuary at the Centers for Medicare and Medicaid Services (CMS) showing healthcare reform will cause an expansion of national healthcare expenditures.

In his editorial, Gruber acknowledged that the PPACA will increase national health expenditures—by as much as 2 percent in 2016, when the PPACA’s impact on spending reaches its peak.

“However, these increases are quite small relative to the gains in coverage under the new law,” Gruber wrote, adding that under PPACA, 34 million more Americans will have insurance coverage by 2019. He also pointed out that, according to the CMS, without PPACA, healthcare costs would grow by 6.6 percent per year between 2010 and 2019.

“So we’ll be increasing the ranks of the insured by more than 10 percent at a cost that is less than one sixth of one year’s growth in national healthcare expenditures,” Gruber calculated.

Gruber argues that the key to reining in healthcare costs is to cut the growth rate of medical spending. “On this count, the CMS actuary’s news is good,” he said. “[A]lthough the PPACA will boost medical spending somewhat, its incremental impact on spending will decrease over time (from 2 percent in 2016 to 1 percent in 2019). These declining estimates imply that by the second decade, the PPACA will have reduced national health care spending.”

And given the uncertainty surrounding the question of how to contain the growth in healthcare costs, the best course, Gruber said, is to “cautiously” pursue as many cost-containment approaches as possible and see which ones work.

“That is exactly the approach taken in the PPACA, “ he said,  which includes provisions such as:

  • Reducing consumer demand through the so-called "Cadillac" insurance tax;
  • Cutting provider payments by appointing a depoliticized board to make up-or-down recommendations to Congress on changes to Medicare’s provider payments;
  • Runningdozens of pilot programs to test various approaches to revamping provider-payment incentives and organizational structure;
  • Investing hundreds of millions of dollars in new comparative-effectiveness research; and
  • Launching pilot programs to assess the impact of various reorganizations of the medical malpractice process.

Gruber concludes that both the Congressional Budget Office and the actuary at CMS have shown that the PPACA will help reduce the federal deficit while only slightly increasing national medical spending, and will begin to reduce the growth rate in healthcare spending while introducing new initiatives that will help to restrain healthcare spending over the long term.