The latest analysis of health care reform – out this week from bean counters at Medicare – shows reform will raise health care spending slightly over the next 10 years, not reduce it as promised by President Obama. That won’t make selling it on the stump any easier. Yet there’s a glimmer of hope in the out years of the 10-year projection that the plan will begin to “bend the cost curve.”
Here’s the real bad news for reform supporters. The private insurance market will absorb most of the increase, and most of that will fall on individuals. Employer contributions for their workers’ private insurance will actually fall $120 billion in 2019 from previous projections because of reform.
Individuals will get hit two ways. First, the actuaries at CMS are projecting a huge 9 percent increase in out-of-pocket expenses in 2018 and 2019, after the so-called “Cadillac tax” goes into effect. This is a steep excise tax on high-cost insurance plans. To avoid tax penalties, experts expect employers with such plans – which may only be high-cost because they are filled with sicker and older beneficiaries – will reduce coverage by increasing co-pays and deductibles.
A second factor driving out-of-pocket expenses higher for individuals under reform will be the insurance mandate, which will drive many people to seek coverage through the new state exchanges. CMS predicts over 30 million people will be getting insurance through the exchanges in 2019, substantially more than the 24 million projected by the Congressional Budget Office last March, when reform passed.
While low- and moderate-income individuals and families can get subsidized plans through the exchanges, most of those subsidies will only be partial. And many of previously uninsured who will be required to buy insurance won’t be eligible for a subsidy at all.
If you dig deep into the CMS numbers, though, there is a silver lining for reform supporters.
Health care’s share of the domestic economy in 2019 will be higher than it would have been had reform not passed, according to economists at the Centers for Medicare and Medicaid Services. Health care will claim 19.5 percent of gross domestic product that year, not the 19.3 percent the same group predicted last February, before reform passed.
Overall spending on health care is expected to grow by 6.3 percent on average over the decade, which is still about twice as fast as the rest of the economy.
If you dig deep into the CMS numbers, though, there is a silver lining for reform supporters. The rate of spending is expected to slow considerably near the tail end of the decade, as the initial costs of adding 32.5 million people to the ranks of the insured begin to moderate and the projected savings in Medicare take full effect. That bodes well for the second decade of reform – assuming the Democrats can keep its provisions in place.
A continued ratcheting down of payments to hospitals and physicians would jeopardize seniors’ access to services.
These latest projections also offer solace to those primarily concerned about federal taxes and Medicare solvency. Medicare spending will decline $86.4 billion from previous projections due to reforms, the report said. “The lower payments from improvements in productivity and lower Medicare Advantage payments will more than offset the phase-out of the donut hole (in the Medicare prescription drug benefit),” said Andrea Sisko, who presented the data for CMS.
The August Medicare trustees report expressed a lot of skepticism about the agency’s ability to achieve productivity savings. It warned that a continued ratcheting down of payments to hospitals and physicians would jeopardize seniors’ access to services. But Richard Foster, chief actuary for CMS, said at a press briefing yesterday that this was primarily a long-term concern. “Within the next 10 years, most experts think the productivity updates are feasible,” he said. “The real question is what happens in the longer range.”
So, if Medicare spending is going to be less than expected over the next decade because of reform, whose payments are going up? Interestingly, it’s not projected to be state and local governments, which combined will see only a $10.6 billion increase over the earlier projections because of reform, according to the CMS economists. While more than half of the uninsured will be getting coverage through Medicaid programs, the federal government is picking up 90 percent of the new Medicaid tab, with its share being offset by the savings in Medicare.
Merrill Goozner is a regular contributor to THCB. You can follow his work here and on the insightful GoozNews. This story first appeared in The Fiscal Times, a site that has been catching our eye increasingly of late.