Thursday, September 9, 2010

qotd: Is national health spending rising?

Health Affairs
September 9, 2010
National Health Spending Projections: The Estimated Impact Of Reform Through 2019
By Andrea M. Sisko, Christopher J. Truffer, Sean P. Keehan, John A. Poisal, M. Kent Clemens and Andrew J. Madison (from the CMS Office of the Actuary)

Projected National Health Expenditures (NHE)

2010 - $2,600 billion (17.5% of GDP)
2019 - $4,571 billion (19.6% of GDP)


In this analysis, we have shown that the net impacts of key Affordable Care Act and other legislative provisions on total national health expenditures are moderate, but the underlying effects on payer spending levels and growth rates are much more pronounced and reflect the Affordable Care Act's many substantive changes to health care coverage and financing. As the provisions are implemented over time, their actual impacts may well differ considerably from these estimates.

Many important details of the legislation will evolve through regulatory activity and become more concrete. Moreover, behavioral responses to reform provisions on the part of health care providers and consumers, employers, and insurers are difficult to anticipate. These will become more apparent only after the bulk of reforms have been implemented in 2014.

Report - free download for the next two weeks only:

Comment:  What does this mean? Here are some of today's headlines of articles covering this report:

Health Plan Won't Fuel Big Spending, Report Says (New York Times)

Gov't: Spending to rise under health care overhaul (Washington Post/AP)

Government Economists Say Health Overhaul Won't Significantly Increase Spending (Kaiser Health News)

Health Outlays Still Seen Rising (Wall Street Journal)

Consumers to Pay Nine Percent More Out of Pocket (Fiscal Times)

Is health care spending rising or isn't it? The confusion stems from the fact that the additional increase in projected national health expenditures (NHE) resulting from the enactment of the Patient Protection and Affordable Care Act (PPACA) is relatively modest when compared to the projection of NHE without enactment of PPACA. Without PPACA, NHE for 2019 was projected to be $4.48 trillion (19.3% 0f GDP), whereas now the projection is $4.57 trillion (19.6% of GDP).

Thus the conflicting reporting reflects the "I told you so" arguments on both sides. The opponents of PPACA are saying that the promises of lower costs are not true, and this is yet one more report that shows that costs will increase. The proponents of reform are saying that this report proves that many more individuals will be covered without a significant increase in costs. This is the wrong debate.

The fact is that national health expenditures had been predicted to increase at a rate well in excess of inflation, and that PPACA will do nothing to slow that increase, though it will not make it much worse. What PPACA is doing instead is that it is rearranging the financing of health care in a manner that will result in more Americans - but not all - having some sort of health care coverage, but it does so in a way that can have a significant negative impact on patients and providers.

How can so many more people be covered without spending much more money? There are some hints in this report.

"For example, higher projected spending by a greater number of insured people is somewhat offset by the projected impact of the Medicare savings provisions and relatively lower prices paid to providers for services to newly insured Medicaid beneficiaries." 

Providers will be paid significantly less for the large influx of Medicaid patients, because of the reductions in Medicare payments, and especially because of the reductions that will be dictated by the Independent Payment Advisory Board. This could be disruptive to the care provided by the physicians and hospitals that are targeted by these reductions.

" By 2018, however, we project out-of-pocket spending growth of 9.6 percent — four percentage points faster than our February 2010 projection. This effect is mainly attributable to the excise tax on high-cost employer-sponsored plans, which is expected to result in greater cost sharing as many affected employers scale back coverage to minimize their tax exposure."

There are other measures in PPACA that will result in additional cost shifting to patients, such as the low actuarial value of the exchange plans with subsidies that are inadequate to prevent higher out-of-pocket spending. Making health care less affordable for those who need it does reduce spending, but at a terrible cost in impaired health outcomes.

Covering tens of millions more people for about the same spending, using our inefficient fragmented health care financing system, is being accomplished by making patients and their health care providers absorb the much higher costs. Just wait until we all feel the pain.

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