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How Much Will Health Reform Cost? Not Much, Study Finds

The government may be picking up the tab for nearly half of the nation’s health care expenses by the end of the decade, but very little of the increase will be due to the health care reform law, according to a report published Thursday in the journal Health Affairs.

Analysis from government number crunchers at the Centers for Medicare and Medicaid Services concluded that the law will help insure 30 million Americans who currently lack coverage, while increasing health costs by 0.1 percent more than what would have been expected without the overhaul.

The report from the CMS Office of the Actuary projected that health expenses will rise 5.8 percent annually over the next decade — 1.1 percent higher than anticipated economic growth.

That kind of growth will mean the nation’s total health tab will come close to $4.6 trillion in 2020, accounting for about one-fifth of the U.S. gross domestic product.

According to the report, the federal government’s share of the bill is likely to increase from 27 percent in 2009 to 31 percent by 2020. Add to that expenses incurred by local governments and states, and the overall government portion of health care comes in at 49 percent, according to the report.

Even so, the study found that last year’s national health spending grew at 3.9 percent — the slowest rate ever recorded, and one that was probably due to the lingering effects of the recession. When millions of Americans lost their jobs and health insurance, they were forced to skip pricey but needed medical procedures and drugs. As the economy recovers, that rate is expected to bounce back.

In 2014, when the major coverage expansions take effect, health spending will probably surge to 8.3 percent as 30 million additional Americans gain coverage through Medicaid and private insurance plans, the report concludes. But the rate is expected to drop back to 6.2 percent in the second half of the decade as cost-control mechanisms of the reform law begin to take hold.

America’s continually expanding health care costs can generally be traced to a variety of factors, including a growing and aging population, increased Medicare enrollment and expensive medical innovations.

But many of those forced to sign up for coverage under the reform law will be younger, healthy Americans who don’t need the high-dollar treatments. For that reason, health insurance coverage, prescription drugs, and physician visits will likely grow in the next 10 years at a faster pace than hospital costs. Spending on prescription drugs alone is expected to increase by about 5 percentage points in 2014, to 10.7 percent. And with better access to needed drugs for preventive care, costs for expensive emergency treatments are also expected to dip.

The glowing findings surprised many, especially because CMS chief actuary Rick Foster has often questioned long-range spending projections in the past, saying that overly optimistic assumptions could prove troublesome. But at a Health Affairs briefing Wednesday, Foster told reporters, “We like to think that the reality in 2014 will be much closer to the projections.”

Democrats and liberal groups warmly embraced that view Thursday.

Ron Pollack, executive director of Families USA, said he was “absolutely delighted” with the findings.

“The new report provides clear and convincing proof of the extraordinary effectiveness projected for the Affordable Care Act,” he said. “When you’re talking about 30 million more people receiving coverage with barely any change in health care costs, that’s an extraordinary thing.”

In an official White House blog post, Deputy Chief of Staff Nancy-Ann DeParle echoed the sentiment: “The bottom line from the report is clear: More Americans will get coverage and save money, and health expenditure growth will remain virtually the same.”

She added that other provisions of the health reform law — such as Accountable Care Organizations, which will aim to bring down costs by getting doctors and hospitals to coordinate care — were not considered in the report.

“We know these new provisions will save money for the health care system, even if today’s report doesn’t credit these strategies with reducing costs,” she wrote.

Kathryn Nix, a policy analyst with the conservative Heritage Foundation, interpreted the numbers much differently. She noted that the same CMS actuaries behind Thursday’s report have warned that the cost-cutting measures embedded in the health care reform law may turn out to be unsustainable if the reform law does not move ahead as written. If planned cuts to providers go forward, for example, many doctors may stop accepting Medicare and Medicaid, and that might force lawmakers to reverse course, she said.

“This report clearly shows we’re on an unsustainable trajectory in health care spending, and the health care bill didn’t really do anything to change that,” she said. “Once you factor in the reality that some of these cost-cutting mechanisms are unsustainable, I think you’ll see that spending will increase dramatically.”

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