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The Overhaul's Impact on U.S. Health Spending: A Lot or a Little?

By John Reichard, CQ HealthBeat Editor

June 12, 2012 -- Depending on whom you talk to, the health care law is either a luxury the nation can't afford or a pretty good deal. Ten-year spending projections issued last week by government economists provide analysts on both sides of the debate with statistics they can cite to depict the overhaul the way they want.

Those who think the law costs too much are likely to note that over the next few years national health spending is going to grow at unusually low rates, according to the projections issued by the Office of the Actuary at the Centers for Medicare and Medicaid Services But when coverage expansion kicks in fully under the health law in 2014—assuming it takes effect—the growth rate will jump.

For example, in 2011 overall U.S. health spending will grow 3.9 percent. That's "slightly above the historically low growth rate of 3.8 percent in 2009," according to a presentation to reporters led by Sean P. Keehan, a CMS senior economist. Growth rates won't bump up much past that in 2012 and 2013; the overall yearly average growth rate for 2011-2013 will be about 4 percent.

But in 2014, national health spending will rise by 7.4 percent, the economists said in a summary of their presentation (They estimated it would rise 5.3 percent in 2014 without the law). "Expansions of Medicaid and private health insurance coverage are projected to increase demand for health care significantly, particularly for prescription drugs and physician and clinical services," the summary said.

Prescription drug spending will grow 8.8 percent in 2014 compared to 4.1 percent without the health law. Spending on doctor and clinical services will grow 8.5 percent compared to 5.3 percent in the absence of the overhaul.

Health care's share of the economy also will rise over the 10-year projection period, at least in part because of the health law (PL 111-148, PL 111-152). In 2010, health spending was 17.9 percent of gross domestic product; by 2021 it's projected to be 19.6 percent. And the coverage expansion will drive up the government's share of overall health spending. In 2021, government spending—federal, state, and local—will account for nearly 50 percent of health expenditures overall, up from about 46 percent in 2011.

Over the 10-year projection period, the overhaul will add $478 billion in spending to the nation's health tab.

On the other hand, the health law will reduce the number of uninsured people by 30 million by 2021, the economists projected in an analysis posted in the policy journal Health Affairs. Twenty-two million people will gain coverage in 2014 alone. And while the law accounts for a sharp jump in spending growth in 2014, it barely boosts the yearly growth rate in overall health spending when its impact is examined over 10 years. Absent the health law, overall health spending would grow at a yearly clip of 5.6 percent. With the law in place, spending would grow by 5.7 percent.

And in the second half of the 10-year period, the law would actually drive down national spending. In 2015-21 the law would reduce overall spending by 0.1 percent per year because of its Medicare cuts and the tax it imposes on high-cost insurance plans, the analysis said.

One of the questions that came up in the press briefing was whether the data demonstrated a "bending of the curve" in overall health spending. A questioner noted that health costs typically have grown at two percentage points above the increase in the inflation-adjusted Gross Domestic Product. The new projections show that the projected average annual growth rate of 5.7 percent would be only 0.9 percentage points faster than the expected annual increase in the inflation-adjusted GDP.

"I don't think we would use that term," Keehan said of the reference to bending the curve. He said "this really has to do with the lingering effects of the recession plus the modest economic growth after the recession." Those two factors "caused a number of things to occur, like consumers being cautious about their spending and then employers looking for ways to cut costs in health spending."

And so when the economy gets back to a more normal inflation-adjusted GDP growth rate of three percent, "it still remains to be seen whether health care spending will continue to grow" at a rate two percentage points higher or dip lower than that, he said.

The analysts repeatedly emphasized that the current spending slowdown reflects lower use of health care services because of the impact of the troubled economy on personal incomes. But another factor in the relatively low overall spending increase projected for 2012 and 2013 is slower growth in prescription drug spending because of expiring patents for costly blockbusters, such as Lipitor and Plavix. That allows a shift to use of less costly generic alternatives.

"Growth in prescription drug expenditures is expected to slow from 3.9 percent in 2011 to 2.9 percent in 2012 and then to 2.4 percent in 2013," the analysts said.

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