'Obamacare' Costs More, But Covers More

The health care reform law costs more, but covers more, government report finds.

September 9, 2010, 8:20 AM

Sept. 9, 2010— -- WASHINGTON -- The healthcare reform law will not slow the growth of healthcare spending in the next decade -- in fact, it will accelerate healthcare spending slightly -- but it will also significantly expand healthcare coverage, a new government report found.

The report, issued by Centers for Medicare and Medicaid Services (CMS) Office of the Actuary, casts doubt on predictions from the Obama administration and Congressional Democrats that healthcare reform would slow the trajectory of healthcare spending.

The CMS analysis pegs healthcare spending growth at an average rate of 6.3 percent over the next decade, or 0.2 percentage points faster than healthcare spending would have grown had the Affordable Care Act (ACA) not become law.

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Put another way, nearly 20 percent of the United States gross domestic product (GDP) -- or one in five U.S. dollars spent -- will be devoted to healthcare costs in 2019. That projection is 0.3 percentage points higher than pre-reform projections.

However, the projection -- which was published Thursday in the policy journal Health Affairs -- does support another promise of reform -- to expand coverage to 32 million people.

The CMS actuaries who wrote the report estimate that nearly 93 percent of the U.S. population will have health insurance in 2019, which is an additional 32.5 million above the current number of insured people.

This is the second 10-year health spending projection released by CMS this year. The first, which was released in February, did not account for the impact of the Affordable Care Act (ACA), which was signed into law in March.

The main driver of increased spending this latest report is the estimated $38 billion cost for establishing the new health insurance exchanges. Close behind is the expected $31 billion increase in the cost of Medicaid. Under ACA, any person under the age of 65 who has an income under 138 percent of the federal poverty level will be eligible for Medicaid.

Taken together, the insurance exchanges and the Medicaid expansion, provide the new structure that will provide care to the uninsured.

Healthcare Reform Will Not Cut Costs; Will Offer More Coverage

Healthcare reform could bring down costs after 2019, but the CMS researchers didn't look beyond the next decade.

The projection outlines some healthcare spending patterns that will likely emerge over the upcoming years as a result of the ACA.

For example, in 2010, healthcare spending is estimated to grow at a rate of 5.8 percent, but it's scheduled to slow in 2011 to 4.2 percent.

But there are problems with that projection since spending slow-down hinges on a planned 23 percent pay cut for physicians who treat Medicare patients going into effect. In June, Congress passed a law to update physician Medicare rates by 2.2 percent, but that temporary fix runs out on Dec. 1. Come January 1, 2011, physicians would also be slapped with an additional 3 percent cut in Medicare reimbursement.

If history is any indication, Congress will likely vote again to override the cut, likely making the projection that healthcare spending will slow in 2011 no longer applicable.

Some immediate changes brought by the law will cause a near term spike in total national health expenditures to occur, the researchers found. For example, implementing the temporary high-risk insurance pool, and providing coverage to dependents under the age of 26 will add more than $10 billion to national health spending through 2013.

CMS researchers said that while reform won't tamp down healthcare spending in the next decade, that's far from the a complete picture.

"While the impacts are relatively moderate on net spending, the underlying effects on coverage and financing are more pronounced," Andrea Sikso, an economist with CMS' Office of the Actuary and lead author of the study told reporters Wednesday.

"When you peel back the onion, and you look past the surface, you start to see much more pronounced impacts," said John Poisal, deputy director of the National Health Statistics Group at CMS' Office of the Actuary, and one of the authors of the study.

One of those layers, he said, is the high projected rate of insured people likely by 2019, said the researchers.

Health Care Law Offers Coverage to Uninsured

Of the newly insured, about 8 million will be enrolled in their state's Children's Health Insurance Plan (CHIP), and nearly 31 million will be enrolled in the new insurance exchanges that the ACA will establish beginning in 2014.

Enrollment in Medicaid and CHIP will increase by one-third over the next decade and enrollment in private insurance will increase from 15.8 million in 2014 to 30.6 million in 2019, the researchers wrote.

The researchers also determined that when federally-mandated COBRA subsidies expire in 2011, the unemployed will be stuck paying for a large share of their insurance coverage, which will lead to slightly higher out-of-pocket health costs starting year. But by 2014, when many people who did not have insurance will be insured, out-of-pocket spending will drop by 1.1 percent, instead of rising by 6.4 percent percent, which was the pre-reform projection.

However, the reduction in out-of-pocket spending won't last, and by 2018, employee spending will actually grow faster than had reform not passed. The CMS actuaries told reporters the projected increase would be caused by the tax on high-benefit, expensive plans. The actuaries predicted that employers would do an end-run to avoid the financial penalty for offering the so-called "Cadillac" plans by passing the extra costs onto all employees.

Finally, crystal balls are notoriously inaccurate so the researchers cautioned that as the provisions of the ACA are implemented, the "actual impacts may well differ considerably form these estimates."

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