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Did The Administration’s Own Study Conclude That Health Reform Will Increase Health Care Costs?

By Igor Volsky  

"Did The Administration’s Own Study Conclude That Health Reform Will Increase Health Care Costs?"

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costcont2A new Center on Medicare and Medicaid Services (CMS) analysis of the non-tax provisions in the new health care law has found that increased utilization by the 34 million newly insured Americans will raise total national expenditures by 0.9% between 2010 and 2019, outweighing the effects of the cost containment provisions in the law (the Medicare Commission, the excise tax, payment updates to Medicare). The report also doubts that providers will be able to “improve their own productivity to the degree achieved by the economy in large” and predicts that the payment updates may lead some Medicare providers “for whom Medicare constitutes a substantive portion of their business” to stop seeing Medicare patients.

The analysis is not without its positives, however:

- The law covers 34 million Americans.

- Overall out-of-pocket spending would decline by $237 billion from 2010-2019.

- It extends the life of the Medicare trust fundby 12 years.

- Public expenditures will actually decrease as a percentage of national health expenditures from 52% to 51%.

So what to make of these mixed results? First, the CMS report analyzes the first 10 years of reform, during which the rate of growth will increase as the uninsured are brought into the system. But after these first 10 years, it’s likely that the Medicare savings and the tax on high cost insurance plans will ultimately bring spending back down. Second, CMS, like the CBO, uses a narrow spectrum of evidence. For instance, the center does not score any savings from preventive care or system modernization (see Table 1 on pg. 23) and omits “any Federal savings pertaining to the excise tax on high-cost employer-sponsored health insurance coverage, the fees on insurance plans, the excise tax on devices, and other non-Medicare revenue provisions of the PPACA.” It also warns policymakers against interpreting the results too literally, since “the responses of individuals, employers, insurance companies, and Exchange administrators to the new coverage mandates, Exchange options, and insurance reforms could differ significantly from the assumptions underlying the estimates presented here.”

Indeed, there is a whole body of research that makes different assumptions and reaches different conclusions. In December, the Commonwealth Fund and the Center for American Progress Action Fund released a study that quantified the savings from the provisions that CMS largely ignores. Economists David Cutler, Karen Davis and Kristof Stremikis relied on business literature about the inefficiency in the health care sector, experiences of health practitioners, and the real world experiences of Geisinger Health System, Health Partners, Denver Health and others and estimated higher savings from modernization and payment reform. As a result, they found that the annual growth rate “in national health expenditures falls from 6.4 percent absent reform to 6.0 percent under the Senate proposal.” Similarly, the administration’s Council of Economic Advisers also released a report last year which found that health reform would reduce health care spending by 1 “percentage point over an extended horizon.”

Despite all this, conservatives are already using the new report to substantiate their criticism of the law. The House leadership blasted the analysis to reporters last night and today Rep. Paul Ryan (R-WI), House Minority Leader John Boehner (R-OH) and the House of Representatives Republican Conference all tweeted the analysis.

Their reaction represents a study in contrast. After the CBO found that health reform will lower the deficit, the GOP dismissed the findings by claiming that Democrats tricked the budget office with accounting gimmicks and funny numbers. The actual cost “over a decade is about $2.3 trillion on paper,” they claimed. “The far more likely deficits are $460 billion over the first 10 years, and $1.4 trillion over the next 10.” Now that the CMS produced a report which find that the law would marginally increase medical spending over the next decade, Republicans are clinging to the conclusion without questioning the methodology. But if the GOP’s initial claims are true, shouldn’t the cost increases be much higher?

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