Health Plan Won’t Fuel Big Spending, Report Says

By ROBERT PEAR
Published: September 9, 2010

WASHINGTON — A new government study says President Obama’s health care law will have negligible effects on total national health spending in the next 10 years, neither slowing nor fueling the explosive growth of medical costs.

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Times Topic: Health Care Reform

About 32.5 million people will gain coverage, and health spending will grow slightly faster than projected under prior law — at an annual rate of 6.3 percent, rather than 6.1 percent, the report said.

The government report, by the office of the chief Medicare actuary, undermines the claims of the law’s fiercest critics and some of its biggest champions.

Cuts in Medicare spending, which start in the next few months, and a tax on high-cost employer-sponsored health plans, which takes effect in 2018, will largely offset the cost of expanding Medicaid and subsidizing private insurance for low-income people, said the report, being published online Thursday by the journal Health Affairs.

“In the aggregate,” said Andrea M. Sisko, the principal author of the report, “it appears that the new law will have a moderate effect on health spending growth rates and the health care share of the economy.”

In 2009, the report said, national health spending, public and private, totaled $2.5 trillion and accounted for 17.3 percent of the economy, as measured by the gross domestic product. The report predicts that health spending will rise to $4.6 trillion and account for 19.6 percent of the economy in 2019.

By contrast, in February, before passage of the comprehensive health care law, the same team of government experts, using the same economic and demographic assumptions, predicted that national health spending would reach $4.5 trillion, or 19.3 percent of the gross domestic product, in 2019.

The report foresees a big jump in health spending in 2014, when major provisions of the new law, including a requirement for most Americans to have insurance, take effect.

From 2013 to 2014, the report says, overall health spending is expected to increase by 9.2 percent, which is significantly more than the 6.6 percent increase predicted in February.

The report foresees an abrupt increase in private health insurance spending, expected to rise 12.8 percent in 2014, to $1.1 trillion. The government had been predicting a 6.7 percent increase before the signing of the new law.

“We expect that the level of health care spending for the formerly uninsured will nearly double as a result of their gaining coverage” through new insurance exchanges, the report said. “For those who previously held individually purchased coverage, many are projected to be eligible for federal premium subsidies.”

The report predicts that some workers will have to pay more out of pocket as many employers scale back coverage in 2018 to avoid the tax on high-cost plans.

Under the law, all states will have insurance exchanges where individuals, families and small businesses can buy coverage. The report predicts that 30.6 million people will be getting insurance through such exchanges by 2019, significantly more than the 24 million estimated by the Congressional Budget Office.

The report offers the first official estimates of new administrative costs. Federal and state agencies will spend more than $37 billion over 10 years creating and operating the exchanges, it said, and “Medicaid administration costs at the state and federal level are projected to increase by $31 billion over the same period.”