Thursday, September 9, 2010

Higher Premiums, Higher Costs

Yesterday saw a front-page story by the Wall Street Journal about how insurance companies were increasing premiums as a result of the health care law.  Today sees the release of another report, this one by the CMS Actuary’s office, about one of the reasons for the premium increases – namely, increases in health costs caused by the law.  The report was published in Health Affairs and can be found here (subscription required).

Every February, the actuary releases ten-year projections for future health care spending; today’s report represents a mid-year update to the report released this past February, and reflects policy changes made in the intervening period – most notably the impact of the health care law’s passage, but also smaller legislative and regulatory changes relating to Medicare physician payments.

Most significantly, the actuaries found that the health care law will increase national health spending by 0.2 percentage points more per year than the February estimates.  Health care spending in 2019 is projected to be 0.3 percent higher than the February estimate – reaching 19.6% of GDP, or nearly one in five dollars out of the American economy.

Other changes to the spending estimates were a predictable result from legislative changes made by Congress.  Private insurance spending and Medicaid spending will rise more quickly after 2014 than the February projections, and out-of-pocket spending will fall slightly at the same time – both the effects of the coverage expansions scheduled to take effect in January 2014.  Similarly, the actuaries found that the COBRA subsidies first included in the “stimulus” resulted in higher-than-expected spending on private insurance in 2009 and 2010; the subsidies’ expiration should reduce private insurance spending growth in 2011.

Some interesting nuggets to note: The report projects a total of $37.7 billion in new administrative spending on exchanges through 2019.  And a McClatchy article this morning cites a separate $31 billion administrative cost to the Medicaid program – a further unfunded mandate not accounted for in the previous Congressional Budget Office estimates of the bill’s impact on states.  In addition, the McClatchy piece quotes Medicare actuary Rick Foster’s belief that “essentially all” Americans would “get their private coverage through the exchanges one day” – meaning private coverage as most Americans currently know it will be effectively eliminated over time.

It’s also important to remember that the actuary’s estimates – that the health care law will increase spending by ONLY 0.2 percent per year for the coming decade – are optimistic in several key respects.  They presume that a 23 percent reduction in Medicare physician payments takes effect in December 2010, followed by a further 6.5 percent reduction in January 2011.  And they also assume the full implementation of Medicare savings proposals the actuary’s office previously called “unrealistic” and “unsustainable.”  For these reasons, the actuary wrote in April that “the estimated reductions in [national health expenditure] growth rates after 2016 may not be fully achievable” – or, in other words, costs may increase more than today’s projections indicate.

Remember too that in June 2009, President Obama promised that any health care legislation would control costs: “If any bill arrives from Congress that is not controlling costs, that’s not a bill I can support.  It’s going to have to control costs.”  Sadly, however, even under the favorable (and, by their own admission, unrealistic) assumptions the actuary used in compiling today’s report, the results reveal that the health care law will raise costs, not lower them.

The Wall Street Journal article on this morning’s study can be found here; the New York Times article can be found here, and the AP story can be found here.