government

Reform law to raise health spending a bit, CMS reports

A slowdown in Medicare expenditures during the next decade will partially offset coverage expansions that take effect in 2014, the agency's actuaries conclude.

By Doug Trapp — Posted Sept. 20, 2010

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The national health reform law and other changes enacted this year will increase overall health spending somewhat in the next decade, but the law will expand coverage significantly, according to an analysis by federal actuaries published online Sept. 9 in the journal Health Affairs.

National health spending is projected to reach $4.57 trillion by 2019, or $89 billion more than the Centers for Medicare & Medicaid Services Office of the Actuary estimated in February.

The updated spending projection includes the impact of the health reform law, a delay of Medicare physician pay cuts until December, and extensions of federal COBRA coverage subsidies until 2011.

These changes and others will push health care's share of the economy to 19.6% in 2019, 0.3 percentage points more than the actuaries' February estimate.

Though coverage expansions in the law will drive some spending higher, other cost-cutting provisions in the law -- particularly in Medicare -- will partially offset those increases, the report concludes. The actuaries' spending estimates increased for Medicaid, the Children's Health Insurance Program and private health insurance. This is largely because of coverage expansions taking effect in 2014 that will insure about 32 million people.

About half will sign up for Medicaid, pushing enrollment from 60 million to a projected 85 million in 2014. Others will get private coverage, including new plans offered in health insurance marketplaces to be operational by 2014.

"We think the great majority of folks who have private [individual] insurance will switch to the exchanges because the premiums will be better," said CMS Chief Actuary Rick Foster.

These new coverage options are expected to reduce the percentage of uninsured people to 8% by 2019, or about 10 percentage points lower than before the national health reform law was adopted, according to the report.

However, Medicare spending is expected to grow more slowly than earlier estimates projected. The actuaries expect the program's cost to reach $891 billion in 2019, or $86.4 billion less than the February estimate. But this assumes that mandated cuts under the sustainable growth rate formula take effect, starting with a 23% Medicare physician pay reduction on Dec. 1.

Also factored in are spending reductions for Medicare private plans, which more than offset the cost of closing the Medicare drug benefit coverage gap, according to the report.

The actuaries' expect slower growth in out-of-pocket health care spending because of the COBRA extension and the 2014 coverage expansions. But such spending is expected to rebound in 2018 as an excise tax on high-cost plans takes effect. Employers probably will reduce the value of high-cost plans to lower their tax exposure, said Andrea Sisko, an economist in the CMS Office of the Actuary. "The corresponding impact would be faster out-of-pocket spending," she said.

The actuaries cautioned that their estimates have substantial uncertainty. "Little historical precedent exists for how the health system reforms will operate in practice," they wrote. The actuaries' estimates of starting and operating health insurance exchanges are based on the experience of Massachusetts, the only state to operate such an exchange.

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ADDITIONAL INFORMATION

The bottom line

View in PDF

Click to see data in PDF.

Centers for Medicare & Medicaid Services actuaries project that the overall effect of the new health reform law will be to boost spending slightly compared with an earlier estimate. But that masks the faster-than-expected spending growth in 2014 compared with the earlier estimate, and the slower-than-expected growth by 2018.

Projected national health spending growth, in billions

Before health reform lawAfter health reform law
Total spendingAnnual increaseTotal spendingAnnual increase
2009$2.475.7%$2.475.8%
2010$2.573.9%$2.605.1%
2011$2.705.2%$2.714.2%
2012$2.855.5%$2.855.2%
2013$3.026.1%$3.026.1%
2014$3.236.6%$3.309.2%
2015$3.446.7%$3.547.1%
2016$3.687.0%$3.807.3%
2017$3.946.8%$4.046.6%
2018$4.206.8%$4.306.3%
2019$4.486.6%$4.576.4%

Source: "National Health Expenditure Projections 2009-2019," Centers for Medicare & Medicaid Services' Office of the Actuary, September (link)

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