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Will health reform bend the cost curve down?

When President Obama and the Democrats set for to reform the health care system, one of their biggest goals was “bending the cost curve.”  Health care spending has grown out of control in recent years and the new law was meant to help fix that.  Yet, as one reporter mentioned at a recent White House press conference, a report from the Center for Medicare Services (CMS) suggests that medical spending will actually increase due to health reform.

Who’s right?
Will reform bend the cost curve down or send health care costs shooting up?  The answer, at least in the short term, is neither.

Back in February, CMS projected America’s total health care spending over the next ten years.  This month, they redid the projection to account for the new health reform law.  Here’s what they found:

“Relative to our February 2010 projections under prior law, average annual growth in national health spending over the projection period [2009-2019] is estimated to be 0.2 percentage point higher than our previous estimate.” Over that same period, “the number of uninsured people is estimated to be reduced by 32.5 million.”

Translation: Medical spending will grow 0.2% faster than it would without health reform, i.e. health reform will bend the cost curve up, but barely.

But it’s important to remember that meanwhile over 32 million more people will now have insurance.  From the Washington Post’s Ezra Klein:

  • Even in the most simplistic analysis, we’re covering about 10 percent of the country and increasing spending growth by 0.2 percent. Seems like a good deal to me.

Here’s another way to look at it.  If you divide total health care spending by the total population in 2019, per capita spending would be $13,652 as a result of the law, and $13,387 without it.  The difference is only $265 more per person.

And that’s just the average over the next ten years.  Check out the graph of the actual cost curve- the percentage health care is expected to increase each year:

The reason spending is expected to rise slightly over the next ten years is because there’s going to be a one-time bump in spending as the exchanges get started and people start getting started.  But after that health spending will grow slightly slower than it would without reform.

The good news, any way you look at it, is that in the short term the cost curve won’t change that much, but 32 million more people will have coverage, which is a great deal.

The bad news is, well… the cost curve won’t change that much.

Health care costs are still projected to grow much faster than the rate of inflation.  Whether health care costs $13,652 or $13,387 per person in 2019– either way that’s still a lot.  Employers will continue to drop insurance plans, offer less comprehensive coverage, and shift costs onto employees. It’s not health reform’s fault, but reform isn’t expected to help much either.

At least for the next decade.  Two of the biggest spending controls in the new law- the excise tax on high value (“Cadillac”) health plans and the independent Medicare advisory board- don’t start until 2018, and it will be a while before they have an effect.

There are also programs to make sure that hospitals don’t have to readmit patients because of screw-ups, and reduce the incentive for doctors to do unnecessary procedures.  Those should also reduce costs, but it’ll take a while for them to get rolling as well.

Which means that the biggest potential savings from health reform– the ones that should do the most to bend the cost curve down– will come after 2019.

Obama and the Democrats have been praised by health policy experts for putting almost every “realistic” cost-cutting proposal into the final law.  They even included some Republican ideas, like the tax on insurance plans.  However, a bunch of really good ideas were left out–not because they wouldn’t work, but because getting them passed was considered unrealistic, if not impossible.  We’ll look at some of those ideas in an upcoming post.

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