CMS


Health Spending Projections from the CMS

Yesterday, Health Affairs released the annual projections of national health expenditures (NHE) from the Office of the Actuary at the Center for Medicare and Medicaid Services (CMS). In conjunction with the release of the new projections, Health Affairs asked the lead CMS author, Gigi Cuckler, to provide an overview of the new forecast in a “Health Affairs Conversations” podcast. The journal also asked Princeton University economist Uwe Reinhardt and I to provide some commentary about the CMS projections following Ms. Cuckler’s remarks.

An important takeaway from these new projections is that the CMS Office of the Actuary finds no evidence to link the 2010 health care law to the recent slowdown in health care cost escalation. Indeed, the authors of the projections make it clear that the slowdown is not out of line with the historical link between health spending growth and economic conditions.

Furthermore, to the extent anything fundamental has changed in health care over the last decade, the most likely source of the shift is the steady movement toward higher deductible and consumer-driven health insurance. The authors of the projections note this trend as an important development in employer-sponsored health care.

The entire podcast (about fifty minutes) is available here.

posted by James C. Capretta | 11:35 am
Tags: CMS, projected costs

Gas on the Entitlement Fire

President Obama has argued all year that a primary reason to enact a version of his health-care plan is to “bend the cost-curve” that has been burdening government and household budgets for years. Of course, the president has not shown that he has a credible plan to address rising health-care costs. But that hasn’t stopped him or his aides from talking as if they did.

Robert Samuelson has been a skeptic of Obamacare’s supposed cost-control potential from the beginning, but his column in today’s Washington Post summarizes his case with particularly effective force. It doesn’t hurt that all the evidence is on Samuelson’s side in this debate.

Samuelson’s critique is particularly important because the nation’s long-term prosperity is already threatened by rising entitlement costs. For starters, we are on the cusp of an unprecedented demographic shift. Over the course of the next quarter century, the population age 65 and older will increase from 39 million to 76 million people. This flood of new enrollees in Social Security and Medicare will push the costs of these programs up very dramatically. And runaway per capita health-care costs will exacerbate the problem substantially. According to the Congressional Budget Office (CBO), between 1975 and 2007, per capita Medicare spending rose, on average, 2.3 percentage points faster than per capita GDP growth. Medicaid’s per capita spending growth rate was not far behind. CBO expects both programs to continue growing at an accelerated pace for the foreseeable future. With an aging population and rising health costs, the long-term budget outlook is already challenging, to put it mildly. CBO projects that federal spending on Social Security, Medicare and Medicaid will rise from 10.1 percent of GDP in 2009 to 15.7 percent in 2035. That jump — 5.6 percent of GDP in twenty-five years — would be equivalent to adding another Social Security program or Defense Department to the federal budget without any additional revenue to pay for it.

And so, faced with a mountain of unfunded entitlement obligations, what would Obamacare do? Pile on more. According to the Census Bureau, in 2008, there were 127 million Americans under the age of 65 living in households with incomes between 100 and 400 percent of the federal poverty line. The House and Senate health-care bills would essentially promise all of them either free insurance through Medicaid or caps on their insurance premiums based on their incomes. This would constitute the single largest entitlement spending expansion since the Great Society programs of the 1960s. CBO expects the federal spending associated with these new open-ended health entitlement commitments to reach about $200 billion annually by 2019 and escalate at about 8 percent annually thereafter.

Meanwhile, the measures being touted as potential health-care cost-control steps are, by and large, nothing more than minor adjustments to existing provider payment arrangements in Medicare, and sometimes only tests of new payment approaches. For instance, the administration has been pushing a provision that would limit payments to hospitals that have high rates of preventable readmissions. The House-passed bill includes this change, but at a savings of only $1.6 billion in 2019. And even this level of savings is highly questionable, given the tendency of Congress to water down “payment reforms” over time. Indeed, it’s easy to imagine Congress rolling this payment change back at the first word that some hospitals are keeping the sickest patients out of their beds to avoid risking readmission payment “adjustments.” But even if it and other tweaks in the bills survive, they wouldn’t amount to much and certainly wouldn’t offset the cost pressures unleashed by extending new entitlement promises to a vast portion of America’s middle class.

And that’s not just the conclusion of critics like Samuelson. That’s also what the Chief Actuary for the Centers for Medicare and Medicaid Services (CMS) found in his review of the House-passed bill, released on Friday. As he put it, the provisions aimed at slowing the pace of rising costs would, by and large, have a “relatively small savings impact.” Consequently, instead of “bending the curve,” overall national health expenditures would rise by nearly $300 billion over a decade.

The only cost-cutting items in the House bill that the Chief Actuary said would really pinch costs are the across-the-board Medicare payment rate cuts applied to hospitals, nursing homes, and others. Of course, these kinds of arbitrary payment changes have been tried many times before and have never worked to really ease cost pressures. But, on paper at least, they appear to reduce federal spending. However, the Chief Actuary made it clear in his review that even though he listed the savings on his tables, he doesn’t think things will work out that way in the real world. As he put it, the cuts would push payment rates so low over time that some institutions wouldn’t be able to survive if they continued to serve Medicare patients. The threat of reduced access to care would be reason enough for Congress to reverse course and increase the payment rates at a later date. (Of course, that’s exactly what Congress is planning to do this year with physician fees, now scheduled to get cut 21 percent in January based on a previous congressional payment-rate policy that has now run amok.)

For a while, some Democrats liked to deflect calls for entitlement reform by suggesting that what the country really needs is a health-care plan that slows the pace of rising costs. Indeed, it has become almost a mantra among some Obama apologists to say “health reform is entitlement reform.”

But the bills moving through Congress thoroughly discredit that contention. There’s no reform in these bills. They are entitlement expansions, plain and simple.

Indeed, the Obama administration likes to suggest it has a plan to painlessly root out unnecessary health spending without harming patient care. In truth, there is no such plan, and there never will be. The federal government has no capacity to drive greater efficiency in the diverse and complex health sector. When cost pressures mount, as they surely would if Obamacare passes, the federal response will be what it has always been in the past: price controls and arbitrary caps. All Americans will pay the cost with inferior quality of care and access restrictions. The proponents of the current bills are betting that, by the time this reality has sunk in, it will be too late to wean the public off of another vast and irreversible entitlement.

posted by James C. Capretta | 5:45 pm
Tags: CBO, entitlements, cost, Obamacare, Robert Samuelson, CMS
File As: Health Care

The Death of the House Bill

In July, the president and the Democratic leaders in the House of Representatives argued that the time for analysis and debate was over and that the House should pass its version of health-care reform before the August recess.

Now, just three months later, House Democrats are saying that the bill they were in such a hurry to pass during the summer is old news and irrelevant. What matters now, they assert, is their “new and improved” version of reform, which they promise will be much better and easier to pass. Of course, they aren’t sufficiently confident in its virtues to open it up to public scrutiny just yet. No, they assert the bill will be different even though the legislative plan is clearly going to be just as it was in July. House Democrats are hoping to unveil their updated version of Obamacare as close as possible to a vote, probably in November, so that there is no time for public opposition to stop it.

It might work. But then again, that’s what they tried to do with version 1.0. The original bill was made available on July 14 with the intention of having a vote in the full House on July 31. That strategy failed miserably because it took just a few days for the public to figure out that what House Democrats were pushing represented far more governmental control of health care than the public was comfortable with. Momentum toward passage dwindled.

Now even the original sponsors of the House bill are walking away from it. On Wednesday, Representative Pete Stark (D.-California), the chairman of the Ways and Means Health Subcommittee, responded to a new and devastating analysis of the original House bill (as passed by the Ways and Means Committee on July 17) by saying that it is beside the point. House leaders are constructing a new version, so the new analysis is “out-of-date relative to what will ultimately be voted on in the House,” Representative Stark said.

The analysis in question was conducted by the Chief Actuary at the Centers for Medicare and Medicaid Services (CMS). Given what it says, it’s understandable that Representative Stark would now disown the bill he helped write. Here are some of the findings:

  • Total national health spending would increase by $750 billion over the next decade. (So much for “bending the cost curve.”)
     
  • The overall cost of the House bill will be $1.2 trillion over the period between 2010 and 2019. By 2019, the annual cost of the entitlement expansions would be $236 billion, rising at a rate of 9 percent annually. After all this spending, there would still be 23 million uninsured residents in 2019.
     
  • The president’s signature initiatives to slow the pace of rising costs — comparative effectiveness research, prevention and wellness efforts, and payment changes in Medicare — won’t work as advertised. The savings are almost non-existent.
     
  • The cuts in Medicare Advantage plans would result in “less generous benefit packages” for millions of seniors. The actuaries estimate the House’s Medicare Advantage cuts, which are unlikely to change in any new version of the bill, would force about 8.5 million seniors out of the coverage they would prefer and back into the traditional program. (So much for “keeping the coverage you have today.”)
     
  • Democratic proposals to impose arbitrary, across-the-board payment rate cuts for hospitals, nursing homes, and home health agencies based on presumed “productivity gains” are unlikely to work as planned. The actuaries suggest that some institutions won’t be able to hit the targets because health care is more labor intensive than other sectors of the economy. Consequently, the cuts could force some organizations to leave the Medicare program, thus “possibly jeopardizing access to care for beneficiaries.”

In recent days, House Speaker Nancy Pelosi and her “leadership aides” have let it be known to reporters that they have gotten more favorable reviews of their updated bill from the Congressional Budget Office (CBO). According to press accounts, the new bill, which is not available to the public, comes in under $900 billion and will cut the federal budget deficit for two decades.

From a process standpoint, CBO should never allow members of Congress to characterize the findings of confidential cost estimates without consequences. Undoubtedly, CBO staff is told not to share its analysis with anyone until the bill is unveiled. But if House leaders decide to go public with CBO’s apparent bottom line, CBO really should be obligated to go public with the entire analysis to ensure no misunderstanding. Otherwise CBO’s findings can be distorted. House Democrats are trying to build momentum again toward passage by creating the impression they have found a painless way to turn their budget-busting bill from July into one that actually cuts the deficit. It’s CBO’s job to make sure no one gets away with this kind of phony free-lunch argument. If in fact a new version of the House bill reduces the federal budget deficit over two decades, someone is paying. Who? Here’s betting that’s it’s the American middle class. And as soon as that becomes known, the new updated House bill is likely to become just as unpopular as the now dead and buried old one.

posted by James C. Capretta | 10:37 pm
Tags: CBO, CMS, House, Ways and Means, Pete Stark, Medicare Advantage, Nancy Pelosi
File As: Health Care