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CMS Actuary Says Senate Bill Would Increase Health Spending Through 2019

By Jane Norman, CQ HealthBeat Associate Editor

December 11, 2009 -- A new report by Medicare's chief actuary says that the Senate health care overhaul bill would increase health spending through the next decade by 0.7 percent rather than curbing growth and might make it tough for some Medicare-dependent hospitals to stay in business.

An increased demand for Medicaid services would be difficult to meet especially during the first few years of the overhaul, and both Medicare and Medicaid patients might have trouble obtaining care, it says.

But the report also projects the legislation (HR 3590) would extend health insurance coverage to some 33 million Americans who now go without, a key objective for Senate Democrats struggling to achieve a 60-vote consensus on a main domestic initiative.

Richard S. Foster, the actuary for the Centers for Medicare & Medicaid Services and a non-political civil service employee, wrote an analysis of the House-passed health care bill (HR 3962) in November that Republicans seized upon repeatedly to make the case that planned cuts to Medicare needed to finance the overhaul might not stick.

They also requested this newest bombshell, delivered late Thursday and circulated on Friday, and it gave the GOP fresh ammunition at a tenuous time for Senate Democrats. They are awaiting a Congressional Budget Office (CBO) score on a compromise plan to drop the government-run insurance program in the bill and extend Medicare to people ages 55 through 64, a move that's brought condemnation from liberal groups such as who say Democrats have bargained away real change.

Republicans focused on cost. Sen. John McCain of Arizona described the Foster report as "one of the most serious indictments" of Democrats' approach to health care, adding it should "put the dagger in the heart of the Reid bill." Mike Johanns of Nebraska called it "a roundhouse blow to the Reid plan."

Foster projects that total national health expenditures would increase by $234 billion between 2010 and 2019 under the Senate bill. That reflects the net impact of greater use of health care by newly insured Americans and other coverage expansions, despite provisions aimed at curbing costs, Foster says. He cautions that the actual future impact of the Senate bill is "very uncertain" because so few precedents exist for a wholesale change in the structure of the system. Both the CBO and Joint Committee on Taxation have estimated an overall reduction in the deficit through 2019 under the bill.

Blasting away, Republican Sen. Charles E. Grassley said the Foster report showed that the Senate bill "doesn't do anything to reduce the unsustainable growth in health care spending and in fact would make health care costs grow more rapidly." Sen. Michael B. Enzi, R-Wyo., said "the experts tell us the Reid bill would drive up costs and hurt seniors on Medicare."

But Finance Committee Chairman Max Baucus, D-Mont., said in a one-paragraph statement that there is "a lot of great news" in the report because it showed the Senate bill would extend the life of the Medicare system by nearly a decade, from 2017 to 2026, and would reduce Medicare premiums and cost-sharing for beneficiaries. Linda Douglass of the White House Office of Health Reform wrote on the White House blog that opponents of the overhaul were distorting the Foster report's conclusions and that CMS takes a more conservative approach to measuring savings than other independent experts.

Other Democrats said the report looked at an outdated version of their bill. Foster analyzed the legislation introduced by Majority Leader Harry Reid, D-Nev., on Nov. 18 so his work does not reflect any amendments adopted on the Senate floor since then or the effect of possibly dropping the public option.

"That assessment was of previous versions of the legislation so it's completely wrong," said Sen. Christopher J. Dodd, D-Conn., a top health negotiator. "I saw that study as well and went back and realized they were looking at previous versions of the bill."

Douglass pointed out that Foster also says that proposed reductions in payment updates to Medicare providers, the cost-cutting actions of a new Independent Medicare Advisory Board and an excise tax on high-cost insurance plans "would have a significant downward impact on future health care cost growth rates." During 2010 through 2019, those effects are offset by the costs of expanded coverage, he says.

However, Foster did express great doubt about estimated savings in connection with proposed Medicare price updates for hospitals, skilled nursing facilities and home health agencies that are tied to productivity gains in the overall economy. Those reductions may be "unrealistic" because it's doubtful those providers could match gains in the private sector, Foster says. Over time, these sustained reductions in payment updates would grow more slowly than the providers' costs and simulations by the actuary's office suggest 20 percent of Part A providers like hospitals would become unprofitable, says the report.

As for expanding coverage, the new insurance mandates as well as the expansion of Medicaid would result in 33 million additional Americans with insurance by 2019, Foster says. He projects that 18 million would gain Medicaid coverage as a result of expansion to all legal adults earning less than 133 percent of the federal poverty level, and 20 million would obtain insurance through the new insurance exchanges, many of those individuals qualifying for subsidies. That would be offset by a decrease of 5 million individuals who receive insurance through employer-sponsored group plans.

Foster examines the host of new fees in the bill on drugmakers, medical device manufacturers and health insurance plans and concludes that they would be passed on to consumers in the form of higher prices and produce an additional $11 billion in national health spending beginning in 2011.

He's also very critical of the Class Act, a new long-term insurance program that he says would produce estimated net savings of $38 billion through 2019 mostly because of an initial five-year period in which no benefits are paid. Over the longer term, expenses would exceed revenue and "there is a very serious risk the program would become unsustainable," says Foster. Cuts in Medicare growth rates that are supposed to be achieved by the Independent Medicare Advisory Board "may be difficult to achieve in practice" through 2019, he adds.

Kathleen Hunter contributed to this story.

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