Rate of Healthcare Cost Increase Is Slowing

Parts of the Affordable Care Act that have been in effect since 2010 are working fine

Change in human behavior and away from the status quo is difficult, to say the least, and a big part of the controversy over the Affordable Care Act (ACA). However, there is a consensus that the health care system was broken and needed to be fixed due to rising costs. There is also the fact that a major portion of Americans are not insured and are suffering (and dying) because of this. Premiums that insured individuals are paying are also rising to unaffordable levels because of the rising costs. These are facts.

They are also the two changes that the ACA set out to achieve. The launch of the federal health insurance exchange, without a doubt, has been a big flop and it remains to be seen if it can be fixed by the deadlines for enrollment the law stipulates. However, according to David Cutler, health-care adviser to Barack Obama in 2008 and Professor of Economics at Harvard University, costs are beginning to come under control and there is evidence that the ACA is a significant part of the reason.

The average rate of health-care cost increases began slowing in 2010 to a point where it is less than half the average of the past 40 years. It was originally attributed to the recession and an economic hangover but three years later, it shows no sign of rising. The Affordable Care Act contains some less publicized changes in the way Medicare pays hospitals and other health agencies. Medicare changes always provoke fear. The fears of change in this case were that the quality of care in hospitals would suffer and private plans would flee the program but neither has materialized.

In the past, Medicare payments were based on volume but under ACA, they are based on value. The initiative was to eliminate rewarding hospitals for inefficiencies and negligence. Hospitals were able to increase income with readmissions under the old payment system, a practice they are now penalized for. Since 2011, the readmission rate is down 10 percent, which comes at a significant cost saving. Somewhat unethically, hospital-acquired infections were a big Medicare payment boost to hospitals. Under ACA’s program to cut infections, which encompasses only 333 hospitals at the moment, $9 billion has been saved and patient health has been significantly improved.

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