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Reform to Increase Health Spending!

By September 13, 2010Commentary

We know it will shock those of you who are regular readers of our commentary, but we have just learned that CMS’ Office of Actuary has projected that the recent reform legislation will actually increase health spending over the next ten years beyond what it would have been in the absence of reform.  The Office of Actuary used a model that it developed during the reform law debate and published its current projections in Health Affairs.   (Health Affairs Article) As it consistently suggested during the debate, the new projections show health spending going up, not down as the Administration and Congress insisted would happen.

The estimates show spending growing to $4.57 trillion in 2019, up from $4.48 trillion before reform.  In that period of time the rate of increase will vary year to year, but be slightly up from before the law.  The model suggests that about 93% of people will have coverage.  The Office also looked at administrative costs caused by the law.   In the ten year period, about $2.4 billion will be added to federal administrative expenses, but about $38 billion will be added to state costs.  That is a lot of administrative dollars.

It should be noted that the current article does not include the same caveats as the longer, more detailed analyses the Office performed when the law was in the proposal stage, but those caveats still apply, particularly the unlikelihood that current scheduled Medicare physician and other provider reimbursement cuts will actually be fully implemented.  The absence of those reductions will cause much greater increases in spending.  The other notable provision is the projected increase in consumer payments, which may be understated.  The recent Kaiser Foundation survey and other work shows a rapid switch of private insurance to high deductible and coinsurance plans.  On the other hand, greater penetration of that benefit design might contribute to slowing medical cost rises, as consumers forgo services for which they must pay.  The impact on quality of this change is uncertain.  Overall, it is clear that the health care cost mess will continue for years into the future, in the absence of new “reforms”.

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