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Office of Actuary Says House Bill Bends Cost Curve–Up!

By October 26, 2009November 2nd, 2009Commentary

What seems like ages ago, the House Ways and Means Committee passed a health reform bill.  The Office of the Actuary, a relatively independent part of the Centers for Medicare & Medicaid Services, has issued an analysis of the likely effects of the bill, were it to become law.  (OA Analysis) The analysis finds that through 2019 the bill would add $86l billion to the federal deficit and would increase national health expenditures by 2.7% above what they otherwise would be in 2019.  At the same time, the bill would reduce the number of uninsured from an estimated 57 million in 2019 to 23 million, or anywhere from 15 to 18 million US citizens, depending on how many illegal immigrants are in the country.  While the bill makes a good dent in the number of uninsured, considering the very negative impact on both the deficit and the national health spending trend, it would appear ill-advised to enact it in the current form.

Other notable conclusions in the report are that although the mandate and penalty provisions are fairly strong, certainly much stronger than those in the recently passed Senate Finance bill, a number of persons and employers might choose to forego obtaining coverage and pay the penalties instead.  This will increase the likelihood of a negative spiral of higher users getting coverage, driving premiums higher, which discourages relatively healthy people from participating, etc., etc.  The public option in the House bill, which can pay providers at only 5% more than Medicare rates, would likely attract a significant number of people.  The public option is estimated to have costs 18% below the average level of private insurers, but premiums only 11% below those of private plans because of anti-selection.   It is difficult to believe that physicians and hospitals will support a bill like this that pays them such low rates for an even larger group of people, particularly when coupled with the Medicaid expansion and that program’s extremely low reimbursement.

The primary reason that this bill would drive national health spending higher is the well-known phenomenon that people with new or improved insurance coverage utilize more services.  The report finds little in the bill that would offset this expansion in spending.  It also notes that one of the areas of cost reduction in the bill–continued cutbacks in Medicare payments to certain classes of providers–is unlikely to occur because providers would either refuse to care for Medicare patients or go out of business.

The analysis contains a caveat that the analysis does not reflect the official position of HHS or the Administration.  Apparently both are determined to avoid addressing the substantial issues raised by the analysis, which only heightens the credibility of the work of the Office of the Actuary.  The House Democrats reacted to the new analysis by saying it doesn’t reflect what the House bill will ultimately look like.  We should all hope that they read this analysis carefully and ensure that whatever provisions are in their final bill take in account the concerns raised by the Office of the Actuary.

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