New study: Obama health care won't boost spending much

McClatchy NewspapersSeptember 9, 2010 

WASHINGTON — The health care overhaul law will drive health care spending up only slightly over the next decade, new estimates found.

National health spending will grow a projected 6.3 percent a year through 2019, according to projections that economists at the Centers for Medicare and Medicaid Services released Thursday. Before the overhaul law, CMS economists had projected that the increase in the spending rate would be 6.1 percent a year.

Public and private health care spending are projected to grow 5 percent this year to $2.6 trillion, up two-tenths of a percentage point from federal estimates made in February, before the Patient Protection and Affordable Care Act of 2010 passed.

That law, which President Barack Obama signed in March, transforms the way health care is delivered and financed. It uses a variety of measures such as coverage mandates, expanded government programs and subsidized insurance premiums to increase the number of Americans with health insurance. The law is designed to use taxes, fees and a host of budget-cutting moves to finance the expansion in coverage.

The Congressional Budget Office expects the law to reduce the federal budget deficit by $143 billion by 2019. However, the administrative costs to implement the new law will top $71 billion by that year, according to the new CMS report.

The faster spending growth rate means that health care spending probably will reach $4.6 trillion, or 19.6 percent of the gross domestic product, by 2019, instead of the 19.3 percent projected earlier.

The report found that the new law will provide some notable savings. For example, annual spending growth for Medicare will be an average of 1.4 percent slower each year through 2019, the report found. This is due mainly to more than 150 cost-cutting measures that the law implements, such as cuts in payments to Medicare managed-care plans. These plans long have been overpaid for their services by an average of 14 percent.

Nancy-Ann DeParle, the director of the White House Office of Health Reform, said in a blog post Thursday morning that the report proves that the new law is cutting costs. She cited the projected per-capita health spending average of $14,720 in 2019 as proof. The earlier estimate was $16,120.

"This is great news for the millions of individuals and families who have struggled with the high cost of coverage," DeParle wrote. "More good news for American consumers: The actuary predicts out-of-pocket spending on health care services per person will decline an average of 6 percent to $1,310, a savings of $80 per person per year."

The bottom line:

"In the aggregate, it appears that the affordable care act will have a moderate effect on health spending growth rates and the health care share of the economy," said Andrea Sisko, a CMS economist and the lead author of the study on long-term health costs.

However, the year-to-year changes in coverage that the new law presents will be significant.

For instance, national health spending is expected to jump 9.2 percent in 2014, when states are required to provide Medicaid coverage for nearly all people younger than 65 who earn less than 138 percent of the federal poverty level. The CMS had projected a 6.6 percent growth rate before the new law was enacted.

Enrollment in Medicaid and the Children's Health Insurance Program — which also will expand eligibility in 2014 — is expected to jump that year by 21.8 million to 85.2 million.

Nearly 93 percent of Americans — an additional 32.5 million people — are expected to have health coverage by 2019, with more than 16 million of these newly insured people gaining coverage through Medicaid. The expansion will hike Medicaid's administrative costs by $31 billion through 2019.

Of the $71 billion in administrative costs under the new law, $37 billion will be spent by states to establish health insurance exchanges in which people can use public subsidies to shop for private coverage. The report expects nearly 16 million people to get insurance when the exchanges open in 2014 and nearly 31 million by 2019.

CMS chief actuary Richard Foster said he expected "essentially all" Americans to get their private coverage through the exchanges one day.

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