Yesterday, the Centers for Medicare and Medicaid Services (CMS) released its new projections of national health spending trends through 2020. The findings, which estimate health care spending to reach more than $4 trillion by 2020, come as no surprise: Runaway spending has overtaken the United States health care system and is on the rise. More notably, the study confirms Obamacare does not “bend the cost curve” but only increases government’s share of spending in the health care system instead.
Already, the White House has tried to spin the report as a victory for its health care legislation. Writing for the White House Blog, White House Deputy Chief of Staff Nancy-Ann DeParle touted the all-time low growth rates of the past two years. Indeed, in 2010, health care spending remained an unchanged (yet still breathtakingly large) 17.6 percent of gross domestic product (GDP). In dollars, the nation was estimated to have spent $2.6 trillion, growing by a new historic low of 3.9 percent from the previous year. But as the authors explain, the reason for decelerated spending was the economic downturn and the impact high unemployment had on reducing private coverage—nothing to cheer about. Reduced payments to private plans under Medicare Advantage also contributed to a decrease in Medicare spending.
As the economy recovers and the major provisions of Obamacare kick in, national health spending is projected to grow at quite a clip—increasing, on average, 5.8 percent each year. By 2020, the nation will spend $4.54 trillion on health care, or close to 20 percent of GDP. (For the sake of comparison: In 2010, federal tax revenue totaled 14.9 percent of GDP, and all federal spending combined amounted to 23.8 percent of GDP.)
The most striking impact of Obamacare is its enormous expansion of the role of government in the health care system. The new law increases government health spending by adding as many as 25 million Americans to Medicaid, a health program originally intended for only the truly vulnerable members of society. It also creates a new federal subsidy program to purchase insurance in the exchanges.
By 2020, projected total government spending on health care will be 49 percent of all health expenditures, and Medicare and Medicaid will account for approximately 20 percent each of national health spending. In reality, we will likely reach the “tipping point”—where government spending exceeds private spending—sooner, since the analysis must assume that several unlikely cuts in Medicare spending occur.
For example, Medicare payments to physicians are scheduled to be reduced by 29.4 percent at the end of this year under the sustainable growth rate formula. But Congress is likely to delay these cuts, as it usually does. Assuming the cuts do occur, growth in Medicare spending would decelerate to 1.7 percent in 2012. The more realistic growth rate, the report makes clear, is 6.6 percent—almost four times greater. Current law also assumes similar Medicare cuts under Obamacare to hospitals and other providers will occur, when in fact the CMS chief actuary has warned relentlessly that, were they to go into effect, reduced access to care for Medicare beneficiaries would be inevitable.
In her article, DeParle also claims that, thanks to Obamacare, “more Americans will get coverage and save money and health expenditure growth will remain virtually the same.” The reason health expenditures appear to remain level has much to do with the assumed cuts in Medicare described above, as well as the assumption that cost growth will decelerate as a result of the “Cadillac” tax imposed on high-cost insurance plans in 2018. Whether that politically unpalatable tax will actually go into effect remains a worthwhile question. Finally, the individuals the authors assume will become newly insured are generally young and healthy—a population that would not be expected to increase overall spending significantly.
The ultimate goal of health reform should be to achieve better value so that more Americans can receive coverage at lower cost, without sacrificing the quality of care. CMS’s health care spending projections show that President Obama’s health plan falls short of achieving this. Instead of “bending the cost curve,” the new law will only increase government health spending and the number of Americans who will depend on taxpayer-subsidized, government-controlled coverage.