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CMS Report Finds Health Spending Will Grow Slightly Faster Under New Law

By Jane Norman, CQ HealthBeat Associate Editor

A new paper by independent government economists and actuaries projects that the new health care law will push the growth of national health spending slightly higher during the next decade rather than curbing it.

But administration officials pointed out it also forecasts that Americans will have lower per capita out-of-pocket spending on their health care needs and affirms that nearly 33 million uninsured Americans will acquire health coverage when the law is implemented.

The economists and actuaries at the Centers for Medicare and Medicaid Services say they expect U.S. health spending will grow by 6.3 percent annually during the next decade. That is above the 6.1 percent they projected prior to enactment of the law (PL 111-148, PL 111-152) and other legislative changes earlier this year, including a revision of a Medicare physician payment formula.

The national spending figures account for all payers, private and public, and are annually estimated by CMS.

Additionally, the paper puts a price tag on what it will cost administratively to roll out the law, in Washington and in state capitals. Administrative costs for the health care overhaul at the Department of Health and Human Services are pegged at $2.4 billion over the decade, along with $37.7 billion in state and federal costs for operating the health exchanges and an increase of $31 billion in Medicaid state and federal administrative costs over the same period.

In the paper published in the journal Health Affairs, CMS says overall U.S. health care spending will climb to $4.6 trillion by 2019 and health care will account for 19.6 percent of the gross domestic product. Prior to the health law's enactment, CMS had said health care would account for 19.3 percent of GDP by 2019.

While the new CMS conclusions echo earlier projections of the law's impact made by the agency's chief actuary, Richard S. Foster, they arrive less than two months prior to the midterm elections and likely will reignite Republican criticism of the law's cost and impact. Republicans in recent days have been stepping up attacks and unleashing ad campaigns targeted at Democrats who backed the law as its popularity sags in recent polls.

Andrea M. Sisko, a CMS economist, said in a briefing for reporters that the law did not seem to have a substantial effect on overall spending in its first decade. However, "while these impacts are relatively moderate on net, the underlying effects on coverage and financing are more pronounced," she said. For example, more insured persons will mean more health spending, but that is offset by slowed Medicare spending and lower Medicaid reimbursements to providers, she said.

By 2019, CMS foresees that 92.7 percent of the population will be insured, 10 percentage points higher than before the law was passed. Enrollment in the health exchanges is expected to top 30 million Americans, and enrollment in the public programs Medicaid and the Children's Health Insurance Program will expand by a third to 82.2 million, CMS said. The number of uninsured is projected to decline from 56.9 million to 24.2 million.

At the White House, Nancy-Ann DeParle, director of health care reform, said that the new projections were consistent with earlier CMS conclusions that have provoked unhappiness among Democrats who sought to bend the health care cost curve. But she said the paper confirms a central point about the new law, and that's that it will make health care more affordable for people with insurance.

DeParle said in a blog post on the White House website that the report indicates per capita health care spending will average $14,720 instead of the $16,120 that CMS expected prior to enactment of the law.

"This is great news for the millions of individuals and families who have struggled with the high cost of coverage," she said. In addition, she said CMS expects that out of pocket health care spending per capita will decline an average of 6 percent to $1,310.

It's also significant that the report "confirms that 33 million Americans who are living without health insurance today will gain coverage by 2014," said DeParle.

"While this will result in a short-term increase in spending (as uninsured people begin to receive the care they have postponed or gone without), the rate of growth in spending will slow in the second half of this decade," she said. "This means more money in people's pockets instead of more insurance company profits."

The CMS projection says that health spending will shoot up in 2014 when millions of people gain insurance, so there will be a 9.2 percent increase in spending that year. Out-of-pocket spending will also decline because more people are insured. From 2015 through 2019, national health spending will grow by 6.7 percent, slightly less than the earlier forecast of 6.8 percent prior to enactment of the health care law. That's due to a reduction in Medicare spending growth.

Some have feared that the law would produce a shift away from employer-sponsored health insurance but the CMS report didn't find that, forecasting that about 165 million Americans will remain in such insurance in 2019.

Temporary high-risk insurance pools set up for sick people who can't otherwise get insurance will draw some 375,000 enrollees in 2011, CMS projects. Also a new provision extending coverage to young adults under their family insurance policies is expected to cover 1.5 million people in 2013, CMS said.

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