October 1, 2014

New Report on Health Care Reform: Small Increase in Spending, Large Increase in Uncertainty

The Center for Medicare and Medicaid Services recently updated its estimate of National Health Spending. This unusual mid-year update, delivered in an article in Health Affairs, reflects changes due to the passage of the health care reform law in March, along with a few smaller legislative changes since then.

The overall picture is that within the 2009-2019 time period, projected total national health care spending will slightly increase relative to where it would have been without passage of reform. Annual spending growth will average 0.2 percent higher over the projection period. As a nation, we will go from spending 17.3 percent of GDP on health care in 2009 to 19.3 percent of GDP in 2019, a figure 0.3 percent of GDP higher than it would have been without health care reform.

Within these small overall changes, however, there will be major differences in the number of insured and the payers for health insurance. By 2019, approximately 32.5 million more individuals will have health insurance, which will mean coverage of 92.7 percent of the population (compared to 83 percent prior to passage of the legislation). Within that, Medicaid and the Children’s Health Insurance Program (CHIP) enrollment will be one-third higher due to the legislation. Non-employer-provided health insurance enrollment will increase by two-thirds because these policies are the ones to be subsidized by the federal government through the new insurance exchanges.

It is not surprising that increasing the number of insured would lead to an increase in the levels of spending during the initial implementation of the legislation. What is important, however, is the trajectory of health care cost growth over the long-term. On this, the new report doesn’t offer hard numbers, since the projection period includes only five years of the main insurance expansion and only about two years of the primary cost-control elements. This means the Medicare Trustees' Report, released in August, is the most current look at the long term. What the trustees report assumes, is that the bill’s cost-control efforts gradually produce modest savings in the coming decades -- if Congress allows difficult cuts specified by the bill to continue unaltered (for more on this, see this blog post).

What the trustees report is clear on, and this study seconds, is the tremendous uncertainty involved in coming to any conclusions on overall health care costs -- especially over the long term -- from such a complex piece of legislation. What is also clear is that the relatively benign cost increases reported will depend greatly on Congress sticking to the cost controls built in to the legislation, and properly implementing them and the other provisions of the legislation. More than that, what comes through is that we still have a long way to go on controlling health care spending and need to enact more reform. That is because just assuming the increases in spending from recent reform are balanced out, or even slightly eclipsed by savings over the long term, the nation is still left basically treading water in the swamp of health care program unsustainability. 

As we stated in our recent Issue Brief, this is why for those concerned that the new legislation is deficient in cost control -- and The Concord Coalition is among this group -- the best approach is to find ways of beefing it up rather than promising the public that we can really have something for nothing. Unfortunately, during campaign season, “getting something for nothing” is a more attractive message.

Claims that the law represents large and rapid deficit reduction are untrue. Furthermore, in campaign debate, one can legitimately argue that the law will end up costing more than anticipated or that some of the proposed savings will fail to materialize. However, the surest way to guarantee exploding deficits would be to leave in place popular insurance reforms and repeal the politically difficult choices that have been made to pay for them.

Attacking Medicare cuts or the insurance tax, the individual insurance mandate, or the legislation's Medicare commission (Independent Payment Advisory Board or IPAB) represents an attack on the most important items from the legislation that have a chance to decrease health care costs.

It isn’t surprising that the least popular elements of the bill, and thus the most politically vulnerable, are the ones that do the most to help control costs. That is often the case with hard and fiscally responsible choices. Ultimately however, the aging of the population and rapid growth of health care costs, which are so devastating to the sustainability of Medicare, Medicaid, and the federal budget, will not wait for politicians to bicker about past health care battles before deciding to tackle the issue again. We cannot afford for dramatic, hyperbolic and misleading discussions of health care in the campaign to eliminate the possibility of responsible policy, as politicians draw lines in the sand or promise “free-lunch” solutions.