Health Care Reforms Cost Going Up, But is it Really?

I was a little disappointed to find out the cost estimates for Medicare and Medicaid were going to be higher than we were told. But then, that was the story we read in our local papers. The real story and costs are more complex and pretty much accurate. But that's not how the media has decided to report it (advantage of Republicans), except for Ezra Klein, the health care wonk I'd trust anywhere.

Washington Post: I long ago learned that cost estimates are health-care reform's version of a Rorschach test: They tell you more about the reader than the bill. And the early reaction to the latest estimates (pdf) out of the Center for Medicaid and Medicare Services are no different. So here's what you need to know.

First, be clear about what's being estimated. The Congressional Budget Office's estimates look at the deficit. CMS is looking at total national health expenditures. This often confuses people into thinking that there's conflict between the two sets of numbers when there isn't: CBO says that federal spending is going to go up to pay for the coverage expansion, but that savings and revenue will go up by even more, leading to a net reduction in the federal deficit.

CMS is looking only at the spending side. And here's what it finds: In 2019, implementation of the Affordable Care Act will reduce the ranks of the uninsured by 34 million people and increase nation health expenditures by 1 percent. One percent.
And that 1 percent is actually 1 percent and falling: When the legislation is fully implemented in 2016, the spending increase will be 2 percent. But cost controls kick in over those years and bring it down to 1 percent. Assuming the trend holds, the second decade will see national health expenditures fall below what spending would've been if the bill hadn't passed. So that's the bottom line of the report: We're covering 34 million people and come 2019, spending is expected to be one percentage point -- and falling -- above what it would've been if we'd done nothing.

As that suggests, the CMS study projects only to 2019. That's not very long, given that the bill is implemented in 2014. So it doesn't do much to project how cost controls like the Independent Payment Advisory Board will work in the second decade, which is when they really kick in. The report is also skeptical that some of the Medicare payment adjustments will be implemented.

So it's back to the Rorschach test: You can either say the report doesn't do enough to look at how the cost controls will fare once fully implemented or you can say that it's more evidence that the cost controls won't actually be put into place. I'm optimistic on the cost control front, but you knew that already.

I'd also add that there's reason to think CMS is conservative in its cost estimates. In 2003, the Bush administration suppressed the agency's estimate that Medicare Part D would cost $500 billion to $600 billion over 10 years. The Bush administration was wrong to suppress the projection, but the projection itself turned out to be far too high. If you want to get exact about it, the estimate was 37 percent too high, for reasons Richard Foster, CMS's chief actuary, describes here.

All in all, I think the report makes health-care reform look pretty good. A one percentage point increase in spending in return for covering 34 million people? That's a good deal, I think. But your mileage may differ.