Monday, April 26, 2010

qotd: CMS Actuary's report on financial effects of PPACA

Centers for Medicare and Medicaid Services
Office of the Actuary
April 22, 2010
Estimated Financial Effects of the "Patient Protection and Affordable Care Act," as Amended
By Richard S. Foster, Chief Actuary

The estimated effects of the PPACA (Patient Protection and Affordable Care Act) on overall national health expenditures (NHE) are shown in table 5 (at link below).  In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.

Comment:  Although much attention was given to the CBO (Congressional Budget Office) estimates of the financial impact of the PPACA (Patient Protection and Affordable Care Act), CBO's report was concerned primarily with the impact of the reform on the federal budget, taking into consideration the net costs of the program enacted and the offset of new revenues. The report from the Office of the Actuary of CMS (Centers for Medicare and Medicaid Services) is of much more practical importance for most of us since it describes the impact on our national health expenditures (NHE) - what we will be paying collectively for health care in the future.

To no surprise, we will be paying more than we would have had there been no reform enacted. More people will have coverage through an expansion of Medicaid/CHIP and through subsidized plans to be offered in the new state insurance exchanges. Expanding coverage improves access and thus increases spending. Some are impressed by the fact that the increase in NHE will be only 0.9 percent more than the projected NHE would be without reform.

Keep in mind that without reform, our NHE would have increased from 17.8 percent of GDP (Gross Domestic Product) in 2010 to 20.8 percent in 2019. When it was decided to make health care reform a priority, one of the major reasons was that this increase was considered to be nearly intolerable. The PPACA will increase this even more - to 21.0 percent of GDP - an even less tolerable number. That amounts to a staggering $4,670 billion NHE in 2019 alone.

What should be even more alarming are some of the measures in the bill that kept these numbers from being even higher:

* A major portion of the expansion is in Medicaid, a welfare program that reduces health expenditures by simply paying much lower rates. A continued lack of willing providers is inevitable, especially after the temporary reinforcement of primary care rates expires. If they are not allowed to expire, NHE will be even higher assuming that rates for specialized services will not be reduced further as an offset.

* Another major portion of the newly insured will receive their coverage through the state insurance exchanges. This report projects less increase in health expenditures because of "significant discounts negotiated by private health insurance plans." Why would these "discounts" be any greater in the exchanges that they are now in the existing private insurance markets? Looking for a reduction in NHE through the magic of the marketplace within government established exchanges is not realistic.

* The excise tax on employer-sponsored plans with higher premiums is expected to "increase rapidly" after 2019, per this report. Employers will respond by reducing benefits, thereby increasing out-of-pocket costs for the employees and their families. This may also slow growth in health expenditures, but by the perverse policy of erecting financial barriers to beneficial health care services. Not paying for care that people should have obviously is not a rational way to slow the growth of our NHE.

* The $5 billion authorized for the national high-risk insurance pool is expected to be depleted very soon, resulting in substantial premium increases to sustain the program, in turn resulting in lower participation rates. Not spending money on high-risk pools will limit expenditures, but at what cost?

* Scheduled "productivity adjustments" to Medicare payment updates will further slow the growth in Medicare payments at a time when providers are already very concerned about current rates. The report states, "the Medicare productivity adjustments could become unsustainable even within the next 10 years." Slowing growth in NHE through an "unsustainable" process certainly can't be relied upon.

* The Independent Payment Advisory Board for Medicare is tasked with recommending further reductions in Medicare spending, without reducing benefits. Such recommendations could further stress an "unsustainable" process.

* Some of the reduction in health expenditures would occur because of a decline in the numbers covered by employer-sponsored plans which traditionally have had relatively generous benefits. Again, reducing benefits for services that people need is an inappropriate method of reducing total health expenditures.

We do need to control the excess growth in our national health expenditures, but not by methods that impair access to beneficial services, such as those in the PPACA. 

If we adopted a single payer national health program, we could slow spending by eliminating the profound administrative excesses, by improving pricing though negotiation with health care professionals, by global budgeting of hospitals, by negotiated bulk purchasing of drugs and health care supplies, by evidence-based decisions on covering appropriate services but not ineffective and deleterious services, and by separate budgeting of capital improvements, thereby slowing the over-utilization that is characteristic of systems with excess capacity.

For the physical and financial health of all of us, let's replace PPACA with an improved Medicare that takes care of everyone.

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