Affordable Care Act

    Is the Affordable Care Act reducing health care costs?

    A central premise embedded in the Affordable Care Act was that soaring health care costs could be brought under control while expanding insurance coverage.  President Obama described the process as “bending the cost curve” downward, which is considered essential to keeping Medicare solvent and assuring that adequate medical care remains within reach of American families.
    Among other cost containment measures, the ACA sought to improve hospital and doctor efficiency by instituting a variety of incentives and penalties, and began a push within Medicare to eliminate fee-for-service payments in favor of managed care systems like ACOs that receive per capita reimbursements and stress preventative care.

    Over the past six years, evidence of cost containment is mixed.  Spending growth by all payers, including government, employers, insurers and individuals, was down to 2.9% in 2013 compared to 4% in 2010. But it jumped to 5.3% in 2014, and final figures form 2015 are expected to be comparable. Total health spending in the U.S. in 2014 was $3 trillion, or 17% of the U.S. economy. The federal Center for Medicare and Medicaid Services projects that health spending will grow at an average rate of 5.8% through 2024, and will consume 19.8% of the economy by that year.

    The major presidential candidates have given only glancing mention of cost control efforts, focusing mostly on pharmaceuticals. But the ability to keep overall healthcare costs from growing faster than the gross national product will likely be a key determinant of whether the ACA is successful.


    We asked our experts if reforms embedded in the ACA are working, and what additional steps are needed:

    John Romley, Ph.D. says it depends on whether recent trends in productivity are sustainable:

    “The Affordable Care Act slows the rate of growth in payments to hospitals and other health-care providers.  This policy not only saves money on the Medicare program, but also provides an incentive for providers to become more efficient. Some have worried that opportunities for greater efficiency in health care are limited. However, recent research by Schaeffer Center scholars indicates that U.S. hospitals have been able to substantially improve their performance. Whether that trend is sustainable is uncertain, and will have large implications for the ACA’s ultimate price tag.”


    John Romley, Ph.D.
    John Romley, Ph.D.

    Visiting Associate Professor of Public Policy, Price School of Public Policy

    Visiting Associate Professor of Pharmaceutical and Health Economics, USC School of Pharmacy

    Glenn Melnick, Ph.D.
    Glenn Melnick, Ph.D.

    Blue Cross of California Chair in Health Care Finance
    Professor Sol Price School of Public Policy

    Whether the trend [in improved hospital productivity] is sustainable is uncertain, and will have large implications for the ACA’s ultimate price tag.”
    John Romley, Ph.D.
    Economist at the Schaeffer Center and Visiting Associate Professor at the USC School of Pharmacy and Price School of Public Policy


    Kukla Vera
    Director of External Affairs
    Phone: 213-821-7978

    Leonard D. Schaeffer Center for Health Policy and Economics


    Stephanie Hedt
    Policy Communications Associate
    Phone: 213-821-4555