Monday, November 16, 2009

CMS Report: House health bill will hike costs $289B

The current health reform proposal passed by the House would raise the costs of healthcare by $289 billion over the next 10 years, according to an analysis by the chief actuary at the Centers for Medicare and Medicaid Services (CMS). It also would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others.



The report found that Medicare cuts contained in the health package are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected

CMS's analysis is not an apples-to-apples comparison to the cost estimate conducted by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) because CMS did not review tax provisions, which help offset the price tag of the Democrats' measure. However, the CMS analysis clearly states that the House bill falls short in attaining a key goal to reform the nation's healthcare system.

Some other interesting parts of the study:
  • Total expected additional federal expenditures of $1.0 trillion through 2019. There should be some offset of the costs due to changes in taxation; about $173 billion in offset is projected for Medicare and Medicaid, and the report makes no projection on other tax offsets due to lack of data available to them.
  • Total national health expenditures to increase from a current projection of $35.3 trillion for the 10 years ending in 2019 to $36.1 trillion. The 2019 expenditures expressed as a percent of GDP would rise from 20.8% to 21.3%.
  • Readers are reminded that because of the delayed implementation of the big-ticket items, the 10-year projections everyone has been talking about aren’t true 10-year projections.
  • The report projects that of those who could be subject to penalties for not participating in insurance, 38% will take the penalty rather than acquire coverage.
  • Initial demand for health services may be difficult to meet initially with existing resources; this could lead to price-increases, cost-shifting and/or a change in doctors’ willingness to accept patients covered by low-payout programs.
  • (quoting the report’s summary): “With the exception of the proposed reductions in Medicare payment updates for institutional providers, the provisions of H.R. 3200 would not have a significant impact on future health care cost growth rates. In addition, the longer-term viability of the Medicare update reductions is doubtful.”
  • Although more people would have access to employer-provided coverage due to mandates in HR3200, it’s expected that expansion would be more than offset by employees finding an expanded Medicaid or subsidized coverage through the new Exchanges more economical.
  • The report authors were only able to identify $2.1 billion in cost reductions through 2019 in HR3200. They note that there is quite a bit of variability around the cost savings arising from HR3200’s provisions calling for “comparative effectiveness research”, based on available literature. That research might bring about an $8 billion reduction in national health spending by 2019, and the report notes in fairness that it may require 15-20 years for the full benefits of that cost-bending to emerge.
  • Many cost-reduction provisions in HR3200 are assumed to have negligible impact in the report, either due to negligible expected efficacy, or due to a lack of consensus in published literature about the probable benefits.
  • The “public option” provision in HR3200, due to anti-selection and subsidization, is expected to have loss costs 18% higher than average, but premiums 11% below average. (How the gap is resolved is left as an exercise for the reader.)

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