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Office of the Actuary Strikes Again

By November 17, 2009Commentary

After earlier releasing a memo casting doubt on cost-savings from reform proposals, the Office of Actuary has written another one aimed at the passed House bill, again taking a dim view of its impact on health spending.  (OA Memo) The memo looks only at the health spending effects and the OA is careful to say that this is not the official position of CMS or the Administration.  Nonetheless, for foes of the House bill, the memo will provide further ammunition.

The memo estimates that the coverage expansions will cost about $935 billion through 2019 and give an additional 34 million persons insurance coverage, largely because of the Medicaid expansion.  The OA notes, however, that many, probably healthy, individuals will choose to pay the penalty rather than get insurance.  How happy do you think those people will be with the “reform”?   Overall, the Medicare provisions would delay depletion of the Hospital Insurance Trust Fund until 2022.  Medicare Advantage enrollment would likely drop from 13.2 million now to 4.7 million.  How happy do you think those seniors will be to get fewer benefits?

As with the CBO, the Actuary finds that comparative effectiveness research might lead to very modest reductions in total health spending, but prevention and wellness savings would be negligible.  Overall, national health spending is projected to rise over ten years by $289 billion or almost 1%, from current projections.  This is largely caused by newly insured persons utilizing more services.  The memo also gives a strong warning that some of the behavioral consequences of the bill’s changes would be providers raising prices and preferentially seeking to treat higher-paying privately insured patients.

The memo several times raises a large red flag about the problems with the Medicare institutional provider payment reductions caused by changing the formula that assumes these institutions can make significant productivity enhancements.  The OA clearly believes these enhancements aren’t possible and the payment reductions are therefore likely unsustainable or member access will be significantly reduced.  The memo also indicates that the new long-term care benefit, while aiding the federal deficit in the short run, will begin to add to it around 2025 and suggests this is an ill-designed and ill-advised program.

The House was hell-bent to pass some kind of reform bill, at a pace that left little time for true reflection on its impacts.  The Senate increasingly appears to be taking a more measured approach, one which the OA memo suggests is warranted.

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