Yesterday the Centers for Medicare and Medicaid Services (CMS) released this report estimating the effect of the original Senate health care bill submitted by Majority Leader Harry Reid on the federal deficit and on projected health care expenditures. This post concerns how the new CMS report differs from the previous report prepared by the Congressional Budge Office (CBO) scoring the bill.
It is difficult to compare the CMS and CBO projections for two reasons. First, the two reports break down spending and savings into different categories. I have tried to be careful in adjusting these figures so that we are comparing apples to apples. Second, each report contains information that the other does not. The CMS does not attempt to estimate the major revenue portions of the bill; the CMS is solely concerned with predicting how the bill will affect the cost of medical care to the government and to consumers. The CBO does not attempt to measure the effect of the bill on the overall cost of medical care to consumers; it is concerned solely with the effect the health care bill on the federal budget.
The one area of overlap between the CMS and CBO reports is in measuring how the Senate bill will affect federal expenditures for health care. The three "big ticket" items of the federal health care budget affected by the bill are increased spending on Medicaid, increased spending on subsidies for individuals to purchase health insurance, and savings from reductions in payments under Medicare. The two agencies' competing estimates for the changes in Medicaid and Medicare spending are very close, but the predictions as to the cost of subsidies for the purchase of non-group insurance through are widely divergent. However, this difference appears to result simply from different estimates about how many people will choose to purchase insurance through the exchange.
Increased spending on Medicaid and CHIP due to the expansion of those programs to persons earning up to 133% of the federal poverty level. The CMS estimates that over the next ten years the government will spend an addtional $328.7 billion over ten years (net of two items on page 21 of the CMS report). The CBO report is almost precisely the same; it estimates that that government will spend an additional $327.6 billion on Medicaid and CHIP, (net of 30 line items for expenditures and savings on pages 20-24 of the CBO report).
Increased federal spending in the form of subsidies for low income persons (persons earning less than 400% of the federal poverty level) to purchase non-group insurance through the exchange. The CMS estimates that the total cost of individual insurance subsidies for low-income people to purchase insurance through the exchange will be $617 billion over ten years. (Page 21, CMS) The CBO, in contrast, puts this figure at $447 billion. (Page 21, CBO)
Savings resulting from the elimination of the 14% premium payment to insurance companies under Medicare Advantage and changes to the reimbursement formula for non-physicians. The CMS estimates that these savings will amount to $493.4 billion over ten years (Page 21, CMS), while the CBO predicts that these savings will total $491 billion. (Page 10, CBO)
It becomes important, therefore, to determine why CMS believes that the cost of individual subsidies will be so much more expensive than the CBO does. The CMS figure of $617 billion for these subsidies is almost 40% higher than the CBO prediction of $447 billion.
The principal difference, it appears to me, is that the CMS predicts that by 2019 35 million people will be enrolled on the exchange. (Page 6, CMS) In contrast, the CBO predicts that there will be 25 million people who are enrolled on the exchange by the end of ten years. (Page 20, CBO). This 40% differential in enrollment accounts for the entire variation in the cost of the subsidies, assuming that each enrollment population contains the same distribution of low-income persons.
Like the CBO, the CMS is concerned that extending medical care to the uninsured and underinsured will drive up prices – that there will not be enough doctors and hospitals to satisfy demand, and that reimbursement rates will rise outside of price-controlled markets like Medicare and Medicaid, and that, as a consequence, fewer doctor and hospitals will be willing to participate in those government programs. It is not clear from the CMS report how much, if any, of the increase in the cost of subsidies for insurance premiums is attributable to what it believes will happen to the price of medical care. Other studies, like this one from the Commonwealth Fund that I described in this previous post, predict that the more people who purchase insurance through the exchange the more it will cause the cost of medical care to go down because of the economic effect of pooling the purchasing power of consumers in the non-group market.
The CMS concludes that if the bill is enacted, it will have only a very slight effect on total expenditures for health care. In its report of June 29, 2009, the CMS predicted that if we do nothing, health care costs will nearly double over the next ten years. In the report of December 10, the CMS states that the Senate bill will result in a further additional increase of seven-tenths of one percent over ten years (Page 14, CMS), while extending health insurance coverage to an additional 33 million people. (Page 3, CMS) In contrast, the Commonwealth Fund report referenced above predicts that the Senate bill would significantly reduce health care expenditures relative to current law.
It should be noted that both the December 10, 2009 CMS report and the November 18, 2009 CBO report are evaluating the bill that Senator Reid proposed on November 18. There are, as of yet, no estimates regarding the cost of the bill that may emerge from negotiations between liberal and moderate members of the Senate. Watch, and wait.
UPDATE December 12: J. Taylor Rushing of The Hill reports on the spin that both Democrats and Republicans are putting on the CMS report.
Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue.
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The projections are all wrong because thye do not take into consideration the effect of using lower quantities of labor because of the efficiencies brought by automated process, the effect of moving a lot of lower income health care delivery from the most expensive emergency ward care delivery to low cost venues, and the effects of home care services which are much more efficient and less expensive.
there are a lot of good initiatives out there to reduce healthcare costs:
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